Tariffs, budgets and the Rand: A month of market mayhem

It has been a month of extraordinary volatility in global markets, triggered not by war or disaster, but once again by the unpredictability of a single individual – US President Donald Trump. While his long-standing flirtation with protectionism was no secret, few expected the scale or speed of the tariffs he introduced, nor the ensuing turmoil they would unleash.

The announcement, abrupt and sweeping, sent shockwaves through markets. Investors scrambled as trade tensions between the US and China escalated rapidly, culminating in tit-for-tat tariffs reaching as high as 145% and 125% respectively. Within days, fears of a global recession surfaced, with equities tumbling and currencies reeling.

In typical Trump fashion, the panic was met with a post on X: “BE COOL! Everything is going to work out well.” Soon after, a press conference followed, announcing a 90-day pause on all new “reciprocal” tariffs, with the notable exception of those against China. A 10% baseline tariff on most imports remained in place, a move that did little to calm investor nerves.

For emerging markets, and South Africa in particular, this was only one side of the storm. Domestic politics ensured the pressure on the Rand would not ease anytime soon.

Fault lines within the Government of National Unity (GNU) became impossible to ignore. The first tremor came with February’s national budget. The ANC, in its traditional role as policy driver, presented a budget that was promptly rejected by the DA. This initial fracture delayed approval, and while the budget was eventually passed in April, it was done so without full GNU consensus. The DA’s subsequent legal challenge against the ANC’s version of the budget marked a critical turning point.

For global investors, this wasn’t just noise – it was a red flag. A coalition government divided on fiscal policy, publicly and legally at odds, suggests fragility at the heart of South Africa’s governance. Markets reacted swiftly. Confidence in the Rand collapsed, amplifying the effects of the global tariff shock. By late April, the ZAR had breached all expectations, crashing to 19.93 against the US Dollar and 25.46 against the Pound – a historic low even compared to the pandemic-induced volatility of 2020.

Although some calm has returned to global markets in the wake of Trump’s tariff pause, the damage to the Rand appears to be longer lasting. While the USD/ZAR pair recovered somewhat, driven more by Dollar weakness than Rand strength, the Pound remains stubbornly strong against the local currency, with GBP/ZAR hovering in the mid-24s.

Investor sentiment remains cautious. The Dollar, traditionally seen as a “safe haven,” has come under pressure itself, eroding its appeal and nudging the ZAR slightly higher. Meanwhile, a tentative thaw within the GNU may be offering some domestic relief. A consensus to shelve the VAT increase is seen as a DA victory, suggesting a possible return to unity, at least for now.

A new national budget is due later in May. The question is whether it will be a blueprint for cohesion or another political flashpoint.

Key global economic indicators

United States: Inflation eased to 2.8% YoY (from 3%), while retail sales held firm at 1.4%. Non-farm payrolls surprised to the upside at 177, 000 (vs 130,000 expected).

United Kingdom: GDP exceeded expectations at 0.5% (vs 0.1% forecast), while inflation dipped to 2.6%.

Eurozone: The ECB cut rates by 25bps to 2.25%. Q1 GDP rose 1.2% YoY, with inflation inching up to 2.2%.

Currency performance in April

• ZAR vs USD: Opened at 18.28, closed at 18.56
• ZAR vs GBP: Opened at 23.64, closed at 24.76
• ZAR vs EUR: Opened at 19.79, closed at 21.04

The month has laid bare the fragility of global cooperation and local cohesion. As May begins, both the markets and South Africa’s political actors face the same question: can stability return, or is this merely the eye of a larger storm?

Get our Daily Rand Report delivered straight to your inbox every weekday to keep on top of everything happening with the ZAR.