Rand Strengthens as Iran Strait Deal Hopes Weigh on US Dollar

Good morning

“We are in talks with the Iranians. There is a chance we may have a deal today or tomorrow to open the Strait.”  We’ve heard comments to this effect for months now from Donald Trump and the market has become desensitised to their value, but this comment did not come from Trump, and the market took notice. 

These are the mid rates at 5:45 today:

USD = R16.34	AUD = R11.51
GBP = R22.00	DXY = 99.82
EUR = R18.86	Brent Crude = $78.28 per barrel

Market News

• The week was already going well for the Rand as a triple whammy of Dollar negative developments helped us start the week on the front foot, but then came yesterday’s news and things got even better.  We go into today’s trading session at R16.34 to the Dollar, which is the Rand’s best level for the week thus far, and our best level since the 16^th of July, and if things play out as hoped then further gains are a distinct possibility.
• As we wait for the week’s main data event on Friday afternoon the market has had two other focal points to consider when setting price action and fortunately both have put pressure on the Dollar.  The first has been confirmation that the US and Japan conducted a joint effort to strengthen the Yen late last week, a move that has delivered noticeable returns with the Yen improving from 164 to the Dollar to 157, and with commentary from the US that they will “do whatever it takes” to help their Japanese counterparts just the threat of further intervention has been enough to ensure this move has stuck. 
• Yen intervention speculation has weighed on the Dollar a little, but the week’s big move came when US Treasury Secretary said yesterday that talks with Iran are at advanced stages, and that he sees the possibility of the Strait of Hormuz being fully opened to shipping traffic within the next few days.  Bessent is a well-respected voice within the Trump administration plus his comments were later backed up by Qatari officials who confirmed that Iran is reviewing the latest proposal with chances of an agreement improving.  The Rand strengthened immediately on this news, oil fell by 5%, and US equities rose to fresh record highs. 
• To a lesser extent, there have been two other factors weighing on the Dollar, and while their effects have been limited, the Rand will take any assistance that it can get.  First has been yet another incredibly buoyant US corporate earnings season with the likes of Microsoft, Amazon, Palantir and most importantly, Caterpillar, all smashing expectations.  The majority of US stocks are registering strong gains as a result, and this wave of risk-on appetite can dampen the Dollar’s safe haven allure.  The second is the fact that there is no FED policy meeting in August, which means they have plenty of time and a series of key data releases to digest before their next meeting.  With Middle East headlines improving, and with Brent Crude falling to $78/barrel, bets of a September interest rate hike have fallen from 95% recently to 60% now and that too is Dollar negative.     
• Middle East headlines, and hopefully the announcement of a sustainable agreement, will dominate headlines today and tomorrow, but on Friday the market turns its attention to the monthly US jobs report.  With any luck that number comes in well below the forecast of 83 000 new jobs, as that would pour even more cold water on talk of a September FED hike; we’ll just have to wait and see what happens. 
• Local market data today sees our July services PMI at 9:15.
• Possible USD mid rate trading ranges in the Rand today are R16.20 and R16.50.

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