Forex Report

Good morning

The game has changed in the Middle East with America now being directly involved in the Isreal vs Iran conflict.  The world is on tenterhooks as we wait to see what Iran’s response will be, but for the time being the reaction in the currency market has been surprisingly muted. 

These are the mid rates at 5:40 today:

Market News

• It’s only natural to expect a risk-off feel to the market this morning, and that’s exactly what we’ve seen as the Rand closed at R18.01 to the Dollar on Friday but spiked to R18.14 in early trade today.  But any concerns about a runaway exchange rate seem misplaced for now as we’ve already pulled things back to R18.06 while US equity futures are in the red, but not by much. 
• Geopolitical headlines are dominating all financial news outlets this morning after Donald Trump took the US into a direct confrontation with Iran over the weekend by bombing three of their nuclear enrichment sites.  This has taken the market somewhat by surprise given that the White House told us late last week of Trump’s decision to give diplomacy a two week window before the US might take action, but while we’ve had the predictable verbals from Iran on how they reserve the right to pursue any and all available options there has not been any actual action against US assets. 
• Of course this is very much a live story that could take a nasty turn in an instant but for now America’s involvement has been a once off show of strength with no further actions taken.  The Dollar Index has moved higher this morning as you would expect but its move from 98.77 to 99.00 is by no means a massive spike, and as such the Rand has given up ground but not at an alarming rate.  It seems that as long as there is a sense that the weekend’s events are contained as a “one and done” scenario the flows to safe haven assets like the Dollar will be limited.
• The following is from Reuters and talks to the market’s rather orderly response to the weekend’s quite alarming headlines:  The US Dollar firmed slightly on Monday as anxious investors sought safety, although the moves were muted so far suggesting markets were waiting for Iran’s response to US attacks on its nuclear sites that have exacerbated tension in the Middle East. “Markets appear to be treating the US strikes on Iran as a contained event for now, rather than the start of a broader war,” said Charu Chanana, chief investment strategist at Saxo. “The muted haven flows suggest investors are still assuming this is a one-off escalation, not a disruption to global oil supply or trade.”
• Developments in the Middle East will hold the market’s attention as we go into the new week but it’s worth mentioning that the Dollar took a backwards step on Friday which at one point saw us strengthen to R17.95.  This came as FED member Christopher Waller said he sees the threat to inflation from Trump’s tariff policies as small, and that he would back an interest rate cut as soon as the FED’s next meeting in July.  Of course a July cut would need more than just Waller’s vote to get pushed through, but the market was convinced that the FED is not even thinking about cutting again until the end of the year and so Waller’s comments shook things up a bit while denting the Dollar. 
• No local market data today and we have a fairly quiet week ahead domestically, but it’s a busy week in the States including FED Chair Jerome Powell testifying in front of the House Financial Service Committee tomorrow as well as the FED’s preferred inflation report on Friday.   
• Possible USD mid rate trading ranges in the Rand today are R17.90 and R18.20.

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