What we know
Last week was dominated by promising geopolitical headlines, inflation reviews, and a significant shift in sentiment surrounding the US dollar as a safe-haven currency.
The US Dollar Index (DXY) spent most of the week on the back foot as markets began pricing in growing expectations that the Federal Reserve will leave rates unchanged at this week’s meeting, after last week’s inflation figures came in largely in line with expectations. Additionally, the sharp decline in oil prices has reduced inflationary concerns and has been a reprieve that the local currency has evidently thoroughly enjoyed.
The biggest market-moving story was the apparent breakthrough in negotiations between the United States and Iran, whereby the two countries have allegedly reached a preliminary memorandum of understanding to formally end the conflict after weeks of attempted peace talks. Hopes that the Strait of Hormuz could reopen triggered a sharp decline in oil prices, with Brent crude falling to three-month lows after previously trading above $90 per barrel. This of course boded well for the Rand, adding further fuel to momentum gained off the back of reduced global risk levels.
Gold experienced another volatile week, trading as low as $4,030.00 per ounce earlier in the week, before climbing back to close the week at $4,218.00 per ounce. Earlier concerns around higher interest rates and a stronger dollar weighed on the precious metal, but a softer dollar last week has helped prices recover strongly into the start of this week, where the precious metal has found comfort trading back into the $4,300s.
Closer to home, the rand remained relatively resilient and somewhat surprisingly dipped below R16.14 this morning on the back of a more stable global backdrop. The question the market is now asking is how long the short-term rand strength can be expected to continue, which will undoubtedly be confirmed by Friday’s signing of the proposed de-escalation agreement and the subsequent reopening of the Strait of Hormuz. This would be the most credible commitment to ending the conflict since it began and will undoubtedly be the most watched potential catalyst this week.
What others say
Reuters – Warsh’s debut Fed press conference may reveal his strategy for inflation, rates
“Inflation, in particular, seems stuck more than a percentage point above the Fed’s 2% target, and Warsh’s characterization about whether and when it is likely to fall will be a key first step in the evolution of monetary policy under his leadership.“
CNN – Elon Musk just became the world’s first trillionaire. But how much money is $1 trillion?
“To help put it in context, here are six things that are worth less than Elon Musk.“
Moneyweb – US and Iran say they’ve agreed deal to reopen Hormuz this week
“The development caused equities and bonds to jump at the start of the trading week, while oil and natural gas prices — which soared with the strait’s closure — slumped.“
What we think
Last week we noted that “the Rand has performed remarkably well despite continued uncertainty”. This week mimics this sentiment, as the local currency finds itself largely on the front foot as it continues its trajectory towards levels last seen in March 2026. To put this into perspective, the rand is now trading just 10 cents from the levels before the Middle East conflict began.
Technicals suggest the currency is likely to continue this trajectory unless an opposing catalyst emerges, in the form of an unexpected Fed rate decision or a potential fallout from the deal formed between the US and Iran.
This week’s Federal Reserve meeting will attract the attention of global markets as we head into the second half of June. While a rate hold remains the most likely outcome, investors will be paying close attention to the Fed’s outlook on inflation and growth for any clues on how the Fed attempts to navigate its interest rate path going forward.
For emerging market currencies such as the rand, lower oil prices, a weaker US Dollar Index, and higher commodity prices should provide enough support to outweigh any potential retracements weaker.
The rand’s biggest challenge remains the US dollar and the market’s perception of its safe-haven status. Should the Fed maintain a hawkish tone this week, dollar strength could return quickly and place renewed pressure on emerging market currencies. Conversely, a dovish Fed stance may provide further support for the rand, all else equal.
On a final note, a widely recognised market proverb from the global energy crises of the 1970s and early 1980s states that “the cure for high oil prices is high oil prices.”
Fast forward to today, the statement summarises how commodity markets have once again reminded investors that nothing changes sentiment faster than the prospect of additional supply. Not more than a few weeks ago, traders were discussing the risk of triple-digit oil prices. Today they are debating how quickly crude could fall back to “normal” levels if Middle Eastern supply routes fully normalise. In a real-life economics study, it is interesting to see how age-old economic idioms continue to reveal themselves in modern-day trading.
Our range for the week: R16.00 to R16.40.
Have a great week ahead.
