South African Rand Under Pressure

The South African rand has traded around 16.5 per USD since April, amid a resilient US dollar and heightened volatility in key precious metals, particularly gold and PGMs. This has been largely attributed to the Middle East conflict, which has contributed to increased global uncertainty and reinforced safe-haven demand for the greenback. Meanwhile, progress in US–Iran negotiations triggered a sharp decline in oil prices, helping to ease inflationary pressures. While this improves South Africa’s inflation outlook, SARB Governor Lesetja Kganyago has warned that further rate hikes remain possible. He said that the US–Iran deal still leaves considerable uncertainty, noting that oil prices are unlikely to return to pre-conflict levels soon and that higher fertilizer costs could spill over into food prices during the harvest in the second half of the year. Attention now shifts to the upcoming release of Q2 inflation expectations to gauge the extent of inflationary pressures in the economy.

The South African rand traded around 16.6 per USD, the lowest level since May 19, pressured by a firmer dollar and falling prices of key precious metals, particularly gold and PGMs. Investors sought the safety of the greenback amid volatility sparked by a tech stock selloff and rising expectations of Federal Reserve rate hikes, while a US–Iran peace agreement eased inflation concerns. On the domestic front, South African Reserve Bank Governor Lesetja Kganyago said policymakers are seeing early signs of second-round inflation effects and emphasized the need to act. Kganyago clarified the central bank’s May rate hike of 25 basis points to 7% was taken without updated inflation expectations, noting that they are now available and have drifted away from the target. He noted that the US-Iran deal still left considerable uncertainty, adding that while oil flows have resumed, prices are unlikely to fall back to pre-conflict levels soon.

The South African rand traded around 16.2 per USD, holding close to the highest since early March, as traders weighed the latest inflation data while also eyeing the Fed's policy outcome and an anticipated formal signing of the US-Iran peace agreement. Headline inflation rose to 4.5% in May, the steepest since July 2024, accelerating further from 4% in April, though below the expected 4.7%. Core inflation also quickened to 3.8% from 3.6%, suggesting that underlying price pressures remain relatively contained. The SARB increased rates in May, on expectations that inflation would rise as second-round effects of the Iran war and the energy crisis filtered through the economy. Meanwhile, the interim US-Iran deal to reopen the Strait of Hormuz is seen as reducing pressure on policymakers to adjust rates at the July 23 meeting. The sharp decline in oil prices following the announcement has eased inflationary pressures and shifted rate expectations from two hikes to only one by year-end.