The rand has swung wildly this week as the US election race between Donald Trump and Joe Biden narrows.
With the latest results pointing to a more likely Biden victory, the election race has caused market volatility, and dollar weakness, which has buoyed the local currency, now trading below the R16.00 to the dollar.
“The dollar slipped yet again as the votes now start to indicate a win for the Democratic Party, with Joe Biden leading the race well ahead of President Trump,” said executive director at Peregrine Treasury Solutions, Bianca Botes.
A Biden victory for the US would keep the dollar on weaker footing, Botes said, with a Biden presidency expected to commit more funding to a Covid-19 stimulus package, while also easing on aggressive trade tactics – particularly with China – that has been a main striking point of the Trump presidency.
Botes said that a win for the Democrats will also bring stability to markets, in stark contrast to the volatility brought about by Trump’s erratic nature. This would bring support for riskier assets, she noted.
“A sustained break below R16.00 will open the door for the next big technical level of R15.75. In the near term, however, we can look to more volatility until the election result is confirmed and certainly there will be greater instability to come if the election is contested by Trump,” Botes said.
Stellenbosch University’s Bureau for Economic Research (BER) said that under a Biden win, South Africa stands to benefit.
Two major implications would be the subdued dollar – as a result of the aforementioned stimulus package – as well as the boost for China, which is a major trading partner for South Africa.
Regarding the Biden-driven stimulus, the BER said that “all else being equal, this would support the US and global economic recovery in 2021, with positive spill-overs to South Africa”.
Referring to an easing of trade tensions with China, the BER said that Biden is unlikely to use tariffs as a means to force concessions from China.
“This should be beneficial to the Chinese economy, with potentially some positive effects on the country’s demand for raw materials, many of which are supplied by South Africa.”
Given the high stakes, global financial markets may be on edge and volatile until there is greater clarity on the ultimate US election victor, but also the accompanying policy agenda, the BER said.