What we know
In a market that has been dominated by geopolitical tensions, last week we saw the market react again to economic data releases as the US and Iran move ever closer to a resolution in the conflict, with a Memorandum of Understanding (MoU) signed by both parties at the end of last week.
The MoU extends the ceasefire and allows trade to flow freely through the Strait of Hormuz. This is to be followed by continued discussions over the next 60 days to formally end the conflict. This currently requires a ceasefire on all fronts, which includes a suspension of attacks from Israel on Lebanon, which may still threaten the agreement.
Looking towards the economic data releases, the Fed decided to keep rates unchanged at last week’s meeting, which resulted in a surge in the Dollar. What seemed to drive the market more than the actual decision was the commentary from Warsh in his first speech as Fed Chair. An absence of forward guidance, accompanied by a more hawkish signal in terms of voting by the members, showed that the market needed to adjust its own expectations around the path that interest rates might follow in the second half of 2026.
The overall consensus is that 2026 may bring up to two interest rate hikes, rather than the previously expected reductions, providing support for Dollar trading following the commentary on Wednesday. The probability of a hike as early as the next meeting at the end of July jumped from 6.5% last week to just under 35% currently.
Locally, YoY inflation came in higher, with the MoM figure being softer than the prior month. The recent spike in inflation is being driven by higher oil prices due to the war, but an increase in the Repo rate as well as the resumption in oil trade from the Middle East should allow this to cool going forward.
What others say
BBC – US-Iran memorandum of understanding in full
“The full text of an agreement between the US and Iran to end the war has been released by the US.“
S&P Global – Can Hosting the World Cup Move the Economic Needle?
“As attention turns to the tournament’s economic implications, the key question is whether an event of this scale can meaningfully shift activity in the three North American economies.“
Business Tech – SARS scam warning for South African taxpayers
“Tax filing season in South Africa is around the corner, and taxpayers across the country have been warned to exercise discretion.“
What we think
Last week we said, “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.”
This was indeed the case, as the Rand spent significant time above our expected range due to the change in tone from the Fed. With the Dollar pushing stronger, the Rand will have its work cut out to gain ground in the near term, but may be aided by the end of the conflict and a more risk-on approach globally.
In the week ahead, we look forward to the CPI as well as the Personal Income and Spending figures from the US, which will provide insight into the health of the economy and how disposable income is affected by the uptick in inflation.
Our range for the week: R16.25 to R16.55.
Have a great week ahead.
