The USD/ZAR exchange rate rose to 17.86 on Tuesday as investors reacted to Donald Trump’s trade war with South Africa. It rose to a high of 17.86, up from the year-to-date low of 17.50.
US and China trade war and BRICS tariffs
The South African rand has come under pressure this week for two main reasons. First, Donald Trump threatened to impose a 10% tariff on all goods coming from BRICS countries, which he believes are anti-American.
This includes countries like South Africa, Brazil, Russia, China, Iran, Ethiopia, Saudi Arabia, and the United Arab Emirates. Such a move would have an impact on the South African economy, which counts the US as the biggest buyer of its products.
Second, South Africa is under pressure after Trump wrote a letter to Cyril Ramaphosa, pointing to an upcoming 30% “reciprocal” tariff on all goods from the country. As such, the US will allocate a 40% tariff on all South African goods if the two of them are implemented.
South Africa argues that the reciprocal tariff calculation was flawed as it charges no tax on most goods coming from the United States. Most analysts agree with South Africa’s view, arguing to the average South African tariff of US goods of between 4% and 6%.
Trump calculated South Africa’s reciprocal tariff by subtracting the US exports of $6.5 billion from imports of $11.7 billion. He then divided the $5.2 billion deficit fwith the total trade and multiplied by 100. To ensure “fairness” he divided the number by 2. Ramaphosa said:
“South Africa will continue with its diplomatic efforts towards a more balanced and mutually beneficial trade relationship with the US. “We welcome the commitment by the US government, that the 30% tariff is subject to modification after we negotiate with the US.”
The reality, however, the US could emerge as the key loser in this trade war since most of South Africa’s exports are precious metals like gold and platinum that the US does not have in abundance. South African can also find other buyers of these metals.
The USD/ZAR pair has also reacted to the recent political crises in the country. Ramaphosa recently solved a crisis that threatened his coalition with the Democratic Alliance.
After that, the president faced exclusive claims by a police commissioner who said that a cabinet secretary sabotaged probes into political assassinations.
USD/ZAR technical analysis
USD/ZAR chart by TradingView
The daily chart shows that the USD/ZAR exchange rate bottomed at 17.50 this month and then rebounded after new tariff crisis. It remains below all moving averages, a sign that bears are in control for now.
The pair has also dropped below the important resistance level at 18, the lowest swing on March 18 this year.
Therefore, the most likely scenario is that the pair continues to fall, with the next key level to watch being 17.50, its lowest point this year. A drop below that level will point to more downside as the ongoing tariff fears ebb.
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