Rand Loses Ground as US Inflation Overshadows Falling Oil Prices

Good morning

The good news is that speculation is increasing around some sort of peace breakthrough in the Middle East, and the price of oil is responding accordingly.  The bad news is that inflation reports are backwards-looking, and yesterday’s US data release delivered a direct hit to the Rand.   

These are the mid rates at 5:45 today:

USD = R16.52	AUD = R11.36
GBP = R22.04	DXY = 102.26
EUR = R18.44	Brent Crude = $92.47 per barrel

Market News

• Things were looking good for the Rand for most of the last two trading sessions as we opened at R16.50 to the Dollar on Monday morning and steadily posted gains to touch R16.34 as yesterday’s best level.  But then came the US inflation report setback, a development that sent us tumbling to R16.59 while also setting the scene for more Dollar strength ahead.   
• The market’s sensitivity to last week’s US midterm elections started to fade over recent days, with stocks, which suffered their worst single-day selloff last Thursday since the tariff-induced Liberation Day selloff in April 2025, making a decent recovery on Friday as well as Monday this week.  Talk of Donald Trump meeting with the Qatari prime minister in the White House helped fuel the risk-on mood, especially as Trump over the weekend said that the chances of further military strikes against Iran were highly unlikely, and with Brent Crude falling to $89/barrel coupled with the Dollar Index losing ground, that opened the door for the Rand to hit R16.34. 
• Significantly lower oil prices are great news for the global economy and definitely a reason for the Rand to be in a buoyant mood, but we remained exposed to yesterday’s US consumer inflation report, a report that had taken on even more importance than usual thanks to FED member Christopher Waller comments prior to the release, saying that if the core number came in at 0.3% then he would be in favour of an outsized 50 basis point interest rate hike in December.  The problem therefore is that Brent Crude falling to $89/barrel this week has no bearing on the CPI report, which only looks at price activity over the month prior, a period where Brent touched $117/barrel.
• A hotter-than-forecast CPI report was feared, and that is exactly what we got, as the headline and core readings both came in higher than what was projected.  Bets of a 25pbs FED rate hike in December jumped to 91%, but that doesn’t mean that there’s a 9% chance of no hike; in fact, chances of no hike have been fully priced out at 0%, and the market is now pricing in a 9% chance of a 50bps hike thanks to Waller’s warning, a situation that saw the Dollar Index shoot north while condemning the Rand to R16.59.  To add insult to injury, the next US CPI report comes out on the 10^th of December, the day after the FED’s policy announcement and too late to impact their thinking with what will surely be better numbers.   
• With the US labour market and economy in a position of strength, and with inflation running hotter than it should, this creates a backdrop for sustained Dollar strength, which is not great news for the Rand.  The following is from Reuters:  The Dollar strengthened against major currencies on Tuesday after hotter-than-expected US inflation ‌data bolstered expectations that the FED would raise borrowing costs next month. “Scope for Dollar weakness remains limited in the near term,” said Karl Schamotta, chief market strategist at Corpay, ⁠in ​an investor note. “With a resilient labour market and solid domestic activity ​keeping US consumption strong and staving off an abrupt slowdown, it is difficult to envisage the greenback entering a sustained decline before ​year-end.”
• No local market data today.
• Possible USD mid-rate trading ranges in the Rand today are R16.45 and R16.75.

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