The Daily Forex Market Report

Good morning

And we’re off!!! Trump 2.0 is officially underway and, much like during his first stint as US president, heightened volatility across financial markets should come as no surprise.  If the first day is anything to go by then we are in for an interesting four years. 

These are the mid rates at 6:00 today:

Market News

• Trump’s first day back in office, at least from the currency market’s point of view, can be characterised as one of relief and then reality, and the impacts are clear to see.  We opened the day at R18.70 to the Dollar and slipped slightly to R17.76 just before his inauguration, but that’s when the action started as we first surged stronger to R18.48 only for most of those gains to be given back with a fall to R18.68.  We go into today at R18.60 and it’s anybody’s guess where we are headed next. 
• There are plenty of headlines out there covering Trump’s promises and executive orders but the currency market is focused on anything to do with tariffs, and yesterday turned out to be a day of two halves.  Trump has been his usual vocal self on tariffs over recent months, even going as far as describing “tariffs” as the most beautiful word in the dictionary last October, and the market had no choice but to price in his promises of between 10% and 20% on global imports, and 60% on Chinese imports, as soon as he took office.  With tariffs having the potential to lift US inflation rates this cast doubt on how many times the FED would lower interest rates in 2025 and the Dollar strengthened over recent weeks. 
• The currency market was braced for Trump’s tariff blitz so it was a welcomed surprise when a senior White House official confirmed that tariffs would not form part of his Day 1 executive orders.  A more measured approach is what the market was hoping for and this seemed to be what we would get, and the Dollar Index immediately gave up a large chunk of its built up gains which allowed the Rand to hit R18.48 in double quick time.  Unfortunately that relief was short lived, this as Trump later stated that he’s considering tariffs of up to 25% on Mexico and Canada as soon as the 1^st of February, a percentage that is higher than previously touted and a timeframe that is only 11 days away.  The Dollar Index bounced right back and we fell to R18.68. 
• The following is from Reuters and points out that we still don’t really know anything when it comes to Trump’s actual plans, and therefore volatility is likely to remain in place for a while:  Markets greeted Donald Trump’s second inauguration with a sense of deja vu, as stocks welcomed his broad pro-business agenda but currencies were skittish after he threatened tariffs within weeks. After sliding on relief that no tariffs were immediately imposed, the Dollar jumped when Trump said he was thinking of a 25% tariff on goods from Canada and Mexico from Feb. 1. “We’re definitely headline chasing, which was very much expected,” said Bart Wakabayashi, branch manager at State Street in Tokyo. “You could look at this any which way, right? Is February 1 the open question, or is it the tariffs themselves?”
• We’ll just have to wait and see how the first few weeks of Trump’s presidency unfold, and more specifically, what that means for tariffs, trade and the currency market.  The following from Reuters suggests that his so far more considered approach should be seen as a good sign:  “The biggest reaction is what appears to be the delay on the tariffs. Of all the proposals that are being put forward, that was the one that was most likely to affect the market more dramatically both for its inflationary-potential and just for whatever retribution that would have been for it. When you say you’re going to study and try to negotiate it after you said that you will do it on Day 1, I think that’s encouraging for the market.” Rick Meckler, partner at Cherry Lane Investments, New Jersey. 
• Local market data today sees our November mining production stats at 11:30.
• Possible USD mid rate trading ranges in the Rand today are R18.45 and R18.75.

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