What we know
After entering yet another weekend of wait-and-see after the US proposed a way to end the war, we are again starting the week with an ‘all-bets-off’ approach from President Trump as Iran requested compensation and sovereignty over the Strait of Hormuz. With that in mind, markets remain uncertain regarding how to interpret any new information, leading to haphazard and volatile trading.
Rand/Dollar trading last week was unpredictable, reaching highs of just under 16.90 as Trump launched “Project Freedom Plus” to guide ships through the Strait. Markets were worried that conflict could flare up as Iran warned against attempting to create safe passage. As the week progressed, a resolution began to look more promising as Trump backtracked on the guiding of ships and proposed terms for a resolution, which allowed the Rand to gain some ground, reaching around 16.20 as news of a one-page memo made the headlines.
Turning to commodities, oil continued to be the market leader, guiding currency trading as the market digested any developments between the US and Iran. Gold was also able to benefit from the uncertainty, gaining inversely to oil and supporting ZAR strength during the spurts of positive sentiment later in the week.
US employment data, which usually moves the market dramatically, had little impact as a somewhat stronger jobs figure of 115,000 jobs added to the payroll was not able to support Dollar trading on Friday afternoon.
What others say
Bloomberg – The Fed Chair Who Fought Back
“This is what really defines his approach and will be a critical part of his legacy.“
Daily Maverick – Will President Cyril Ramaphosa resign? Five questions we answer for you
“The shape-shifting Constitutional Court judgment raises fundamental political questions for South Africa’s future.“
Axios – Trump’s Legacy Week
“Three generational forces will converge this week — first in Washington, then in Beijing — in what could prove a hugely consequential stretch of Donald Trump’s presidency.“
What we think
Last week we said, “Markets are currently positioned in a way that favours USD strength or resilience as a safe-haven currency in uncertain environments. This means that even the most neutral data can keep the Dollar supported without merit.”
Although peace talks seem to have stalled, there is no indication of the way forward as to whether the conflict may resume or whether we are headed to yet another round of proposals and counterproposals. This uncertainty means we will likely see more of the same in terms of market reaction, with the Dollar taking advantage of its store-of-value status.
The Dollar could also be further supported should this week’s inflation data be in line with the forecast. Inflation is expected to rise, which will support USD strength, although this may be overshadowed by developments in geopolitical news.
Our range for the week: R16.30 to R16.70.
Have a great week ahead.
