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The South African rand weakened on Tuesday as investors weighed geopolitical tensions linked to the Iran war, while investors digested weaker domestic business confidence data and warnings from the central bank about inflation risks linked to the conflict.
At 1511 GMT, the rand traded at 16.4175 per dollar, about 0.3% down, after being flat in early trade.
- On the domestic front, business confidence fell to a five-month low in March, with the South African Chamber of Commerce and Industry’s Business Confidence Index slipping to 131.3 from 134.6 in February, weighed down by a weaker rand and slower trade.
- South Africa’s central bank on Tuesday said the Iran war presented material upside risks to the country’s inflation trajectory, with markets pricing in two interest rate hikes this year.
- The central bank said it still expected inflation to remain within the tolerance band of 1 percentage point above the 3% inflation target.
- The U.S. dollar edged higher on Tuesday, supported by hopes that a ceasefire could be reached in the conflict with Iran, tempering earlier risk appetite for emerging market currencies.
Like other risk-sensitive currencies, the rand often takes cues from global drivers. The local currency has been at the mercy of global market sentiment since the start of the U.S. and Israeli war on Iran at the end of February.
- “With risk aversion moderating over April, the rand and other commodities currencies have seen some strength over the month, still weaker generally compared to before the start of the war, although those of advanced economies are typically stronger,” said Annabel Bishop, chief economist at Investec.
- On the Johannesburg Stock Exchange, the Top-40 index was down 1.47%.
- South Africa’s benchmark 2035 government bond has weakened, as the yield rose 9.5 basis points to 8.44%.
