South African Rand Fluctuates Amid Geopolitical Tensions and Strong U.S. Dollar

The South African rand experienced volatility on Thursday, fluctuating in the face of a strong U.S. dollar, as geopolitical tensions in the Middle East escalated. This movement coincided with the aftermath of Iran‘s ballistic missile attack on Israel.

At 0830 GMT, the rand was trading at 17.34 against the dollar, showing a slight improvement of about 0.1% compared to its previous close. However, it had earlier traded weaker. By 1506 GMT, the currency had retreated to 17.535 against the dollar, marking a more than 1% decline from its previous valuation.

Currency strategist Andre Cilliers from TreasuryONE commented on the situation, stating, “The USD saw strength due to Middle East tensions and strong U.S. labour data, placing pressure on the ZAR.” The dollar’s robustness was fueled by strong U.S. jobs data released on Wednesday, which dampened expectations that the Federal Reserve would lower interest rates in the near term.

The heightened demand for the dollar was further influenced by the Iranian missile attack on Israel, prompting investors to flock to safe-haven assets. This trend reflected the broader market movement where risk-sensitive currencies like the rand often react to global drivers when domestic factors are not prominently influencing the market.

“While the ZAR has been the best-performing emerging market currency, a correction was overdue after significant appreciation,” Cilliers added. Despite these fluctuations, the rand had appreciated by roughly 6% over the past three months.

On the Johannesburg Stock Exchange, the blue-chip Top-40 index ended the day 0.75% weaker, reflecting broader concerns in the market. Furthermore, South Africa‘s benchmark 2030 government bond showed weakness as well, with the yield increasing by 9.5 basis points to 9.155%.

Domestically, there were some positive economic indicators. Data released by S&P Global earlier indicated an uptick in South Africa’s private sector growth in September. This growth was attributed to an increase in business activity and a significant reduction in inflationary pressures.