Unnerved by surging oil prices and the potential effect on global inflation and growth, global investors are dumping risky assets such as the rand and taking profit on some of their best-performing trades, Reuters reports.
Pressure on the rand is also expected to continue after Brent Crude reached $107.48 per barrel on Sunday, up 15.96% daily and 55.68% monthly, while West Texas Intermediate crude hit $108.58 per barrel, up 19.45% daily and 68.71% monthly, Trading Economics reports.
When the market opened on Monday, the rand traded at 16.85 per US dollar, shedding 2% from its previous close and hovering around its weakest level since mid-December.
The same morning, March 9, crude oil prices surged 25% as the expanding US-Israeli war with Iran led some major Middle Eastern oil producers to cut supplies amid fears of prolonged disruption to shipping through the Strait of Hormuz.
According to Reuters, “analysts said the rand is likely to remain weak as a rise in global risk aversion and higher oil prices weigh on South Africa, a net importer of energy”.
ETM Analytics in Cape Town says the pressure is expected to hold and possibly increase, as the Reserve Bank will expect to combat the outflow from bonds and stem currency volatility by increasing interest rates.
This is after South Africa's benchmark 2035 government bond weakened in early deals, with the yield rising 1.5 basis points to 8.505%.
Reserve Bank governor Lesetja Kganyago has already indicated that interest rate hikes are likely because of the war in the Middle East.
It will bring to an end an easing cycle that began in September 2024.
The bank’s next interest‑rate decision is on March 26.
Andre Cilliers, currency strategist at TreasuryONE, says: “Until there is clarity on the duration and scale of the conflict, markets are likely to remain volatile, with investors favouring defensive positioning.”
