Rand vs Dollar: ZAR battles tariffs, rate cuts and political uncertainty

The Rand’s performance in July was a study in contrasts. It was buoyed by commodity-linked optimism early in the month but battered midstream by geopolitics and rate differentials. Markets grappled with an escalating tariff standoff led by US President Donald Trump, a measured rate cut by the South African Reserve Bank (SARB), and a political reshuffle signalling fresh momentum for the Government of National Unity (GNU). These themes, combined with erratic US data and a volatile Dollar, shaped the ZAR’s journey against both the USD and GBP.

Global drivers

Trump’s tariff gambit

The dominant global narrative was once again shaped in Washington. On 3 July, President Trump announced sweeping tariffs, starting at 10%, escalating to 30%, with a 40% ceiling. These targeted countries "aligned with anti-American interests," explicitly naming South Africa and its BRICS partners. This geopolitical sledgehammer caused an immediate selloff in the ZAR, exacerbated after a temporary tariff ceasefire expired on 8 July with no progress toward resolution.

The ramifications were immediate. Fears of a contraction in South African exports, especially in agriculture and automotive, ignited speculation of up to 100,000 job losses. Investor sentiment turned defensive, compounding pressure on the currency.

US data: A tale of two halves

US inflation surprised to the upside on 21 July (2.7% YoY vs. 2.6% est.), briefly undermining the Dollar. However, GDP data on 30 July shocked to the upside (Q2: 3.0% vs. 2.4% est.), reasserting USD dominance and reigniting risk aversion globally.

But just days later, the 1 August non-farm payrolls (NFP) delivered a jaw-dropper. The print came in at 73,000 jobs vs. 110,000 expected, and the prior month’s figure was revised down dramatically from 147,000 to just 14,000. The result was a rapid USD selloff and nearly 2% ZAR rally into the first weekend of August.

Middle East risk premium fades

Geopolitical risk pricing eased following signs of de-escalation in the Middle East. This shifted market tone toward a risk-on posture in early July. The ZAR, traditionally a high-beta currency in such cycles, benefitted accordingly.

USD weakness: Transient, but material

While US resilience defined much of July’s macro narrative, periodic flashes of USD weakness, especially around soft labour market data and fiscal concerns, provided breathing room for the ZAR. The DXY’s sharp drop post-NFP was a late-game reprieve for emerging markets.

Domestic dynamics

SARB: Surgical cut, limited impact

The SARB delivered a 25bp rate cut on 31 July, bringing the repo rate to 7%. The decision, well-telegraphed, initially supported the ZAR as markets had already priced in the move. However, the follow-through was limited. With global rates still elevated, the cut narrowed the carry appeal of the ZAR, contributing to end-of-month softness.

Ministerial shakeup: GNU recalibrates

On 28 July, President Cyril Ramaphosa dismissed Minister of Higher Education Nobuhle Nkabane from his Cabinet. The decision was broadly seen as a clean-up act within the GNU framework. Markets interpreted the move as a sign of executive resolve and DA-GNU cohesion. The ZAR strengthened approximately 1% intraday on the back of the announcement.

GNU stability: Still a question mark

While the DA remains in the GNU tent, internal tensions around VAT policy and fiscal allocation linger. The market is pricing in a risk premium around potential breakdowns or a drift toward populism. Both scenarios would weigh heavily on investor sentiment and ratings outlooks.

Inflation and trade dynamics

CPI for July ticked up to 3% YoY, still below SARB’s midpoint target of 4.5%, but hinting at a turning point. Combined with tariff-induced import costs, the inflation trajectory may narrow SARB’s space to ease further. Meanwhile, a R22 billion trade surplus, driven by strong export receipts, provided a cushion for the currency.

ZAR performance: A volatile, range-bound month

Against both the USD and GBP, the Rand experienced a choppy yet ultimately range-bound trajectory through July. This reflected the push-pull of global macro forces and domestic developments. ZAR strength early in the month was driven by broad risk-on sentiment, weakness in the US Dollar, and South Africa’s strong trade surplus. However, mid-month saw a sharp reversal as Trump’s escalating tariff regime, explicitly targeting South African exports, triggered investor flight and renewed fears around trade disruption and job losses. The USD/ZAR pair climbed from 17.57 to 17.92 during this period, while GBP/ZAR also moved higher as global risk appetite faltered and commodity prices dipped.

The ZAR regained some ground in the third week, buoyed by softer US inflation data and optimism around South Africa’s G20 diplomacy. Another bout of pressure emerged as markets digested SARB’s rate cut and solid US GDP data. The month closed with a volatile swing. ZAR weakness following tariff implementation and the SARB’s dovish pivot was abruptly offset by a sharp USD selloff after a dismal US jobs report. GBP/ZAR tracked a similar path. The Rand initially strengthened, then weakened due to tariff and inflation concerns, before settling into late-stage consolidation. Overall, the currency oscillated within a relatively narrow band, caught between geopolitical shocks and flashes of economic resilience.

Uncertain outlook for ZAR

The ZAR navigated a minefield in July. Trump’s tariffs, SARB’s dovish tilt, and fragile domestic politics created a climate of uncertainty. Yet the currency proved more resilient than expected, aided by a solid trade surplus, gold’s rally and moments of USD fragility.

Looking ahead, August will be defined by how aggressively the US administration follows through on tariffs, the SARB’s reaction to inflationary risks, and whether Ramaphosa can hold the GNU line. The ZAR enters the month bruised but not broken. Its fate now hinges on whether markets believe the GNU can hold, and if Washington’s trade war will spiral beyond rhetoric.

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