USD/ZAR Falls to R15.92 as Middle East Tensions Ease

Good morning

While we’ve already had a few key developments over the past two days the week’s main events still lie ahead, but the good news is that the currency market has responded well to what’s been on offer thus far and the Rand is on the front foot. 

These are the mid rates at 5:45 today:

USD = R15.92	AUD = R11.44
GBP = R21.71	DXY = 98.95
EUR = R18.57	Brent Crude = $86.25 per barrel

Market News

• There’s a long way to go before we get to the weekend but so far so good, this as the Rand hovered around R16.00 over Monday and Tuesday morning, but from midday yesterday onwards we’ve managed to register steady gains with our Dollar exchange rate making it all the way to R15.92.  As is always the case in the currency market things can change in a heartbeat, but for now we’ll cheer this much improved level while hoping there is more to come. 
• The currency market treaded water on Monday, mainly because traders are waiting to hear what FED Chair Kevin Warsh will say in his keynote speech this Friday, but partially because they also wanted to assess US Treasury Secretary Scott Bessent’s threat of “the single greatest financial offensive ever” when referring to the next round of Iranian sanctions scheduled to be announced on Monday night.  As it turns out those sanctions were not as harsh as first feared, especially as they threatened action against countries seen to be aiding Iran through trade but stopped short of directly mentioning China as a possible target. 
• The market moves quickly as only a few days ago Brent Crude was at $94/barrel and rising thanks to concerns that tensions in the Middle East were escalating.  But with the US indicating that they would prefer to pivot towards economic warfare rather than shooting missiles, with Bessent’s sanctions falling short of expectations, with reports that Iran and Oman are in talks to manage traffic through the Strait of Hormuz and with other reports that US diplomatic personnel being moved back into the area to ostensibly resume talks that has seen Brent fall to $86/barrel as tensions ease.  Lower oil prices are good for the Rand and have contributed to our move stronger. 
• The Dollar Index’s fall in recent sessions has definitely contributed to the Rand breaking below R16.00 but the following from Reuters warns that while reasons for Dollar pressure remain the greenback is now in oversold territory which could open the door for a recovery should headlines shift:  “The fundamentals seem to move against the Dollar — whether it’s Bessent, whether it’s ​that the other central banks expect to raise rates more than the FED — so the fundamentals are negative. But ⁠the Dollar is overstretched, the momentum indicators are oversold for the Dollar,” said Marc Chandler, chief market strategist at Bannockburn Capital Markets in New York. “So to ​me, that’s the tension that you’ve got: Dollar oversold technicals and bearish fundamentals.”
• An improving Middle East scenario has been good for the Rand but on the local front we also found support from our government bond auction yesterday that was almost six times oversubscribed.  R2.55bn in various durations were on offer but the combined bid was R14.79bn thanks to the current demand, and with this clear vote in confidence for our government paper that would have been another tailwind for the Rand. 
• No local market data today and at an equity level investors wait with bated breath for the quarterly Nvidia earnings report that comes after the US market closes tonight.   
• Possible USD mid rate trading ranges in the Rand today are R15.85 and R16.15.

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