US President Trump is leveraging tariffs as a strategic tool to pressure trade partners into swift concessions. Overnight reports indicate he has paused tariffs on Canada and Mexico for one month after securing certain commitments he was looking for, although it is concerning that he maintained tariffs on China. By linking tariffs to illegal immigration and fentanyl imports, Trump created an off-ramp for negotiations. Investors are watching how he approaches China, however, as his tactics raise the risk of the trade war between the world’s two biggest economies snowballing.
As for South Africa, sentiment has also recovered after Trump threatened to cut off aid over the controversial land expropriation bill signed recently. Many in the market view international scrutiny of South Africa’s policies as a positive force for accountability. The issue of expropriation without compensation, already seen unfavourably, has reinforced the need for property rights to be respected or for the government to face consequences. While the impact on South Africa remains uncertain, authorities await potential US actions in response to how the country has positioned itself globally.
ZAR Markets
The USD-ZAR surged above 19.00/dlr before retreating sharply to close near its opening level at 18.7100, easing concerns over extreme volatility and inflation. Overnight, Trump secured concessions from Canada and Mexico, pausing tariffs and signalling his use of trade measures as a negotiation tool rather than a reckless policy shift. While no changes were made regarding China, the development suggests a more measured approach. However, Trump’s impact on markets highlights their sensitivity to uncertainty, serving as a reminder that equities and other assets are highly priced for positive news and could face volatility if negative developments arise.
Global FX Markets
The Australian and New Zealand dollars attempted to stabilize on Tuesday following extreme market volatility triggered by U.S. tariff policy shifts. The Australian dollar recovered to $0.6213 after plunging to a five-year low of $0.6088 on Monday, while the New Zealand dollar rebounded to $0.5618 after touching a two-year low of $0.5517. Markets reacted positively to U.S. President Donald Trump’s decision to delay 25% tariffs on Mexico and Canada for a month, raising hopes they might be avoided altogether. However, the looming implementation of 10% tariffs on China continues to create uncertainty, with investors closely watching for any retaliatory measures from Beijing. Given China’s role as Australia’s largest export market, additional tariffs could weigh on demand for Australian resources and disrupt global supply chains, posing stagflationary risks. The movement of the Chinese yuan remains a crucial factor, as the Australian dollar often mirrors its fluctuations. On Monday, the offshore yuan hit a record low of 7.3765 per U.S. dollar before recovering to 7.3125, amid speculation that China will not resort to devaluation. With Chinese markets reopening from holiday on Wednesday, any significant yuan depreciation could further pressure the Australian dollar.