Weaker rand eyes US-Iran conflict as oil prices jump

The rand may test R14.40 against the dollar on Wednesday (8 January), as global markets take their direction from the rising conflict between the US and Iran.

Iran launched more than a dozen missiles at US military sites in Iraq in retaliation for the killing of top Iranian general Qassem Suleimani, who US forces killed in a strike last week.

US president Donald Trump tweeted “All is well!” and added that he would make a statement on Wednesday.

Oil prices jumped on news of retaliation by Iran, sparking fears that the deepening conflict will disrupt global crude supplies, Bloomberg reported.

Futures in London briefly surged more than 5% to almost $72 a barrel as the Islamic Revolutionary Guard Corps claimed responsibility for the missile strikes, which the Pentagon said were launched from Iran. Prices later pared more than half that advance after Iran’s foreign minister said it had “concluded proportionate measures in self-defence”.

While flows from the Middle East continue to be unimpeded for now, the risk of disruption is spooking the oil market, Bloomberg said. Most crude exports from the Persian Gulf, including shipments from Saudi Arabia, Iran and Iraq, go through the Strait of Hormuz, a narrow waterway that Iran has repeatedly threatened to shut down if there’s a war.

The impact of the strike also spilt over into other assets, with gold surging to the highest level in six years, while US stock futures pared losses after slumping earlier. Gold surged above $1,600 an ounce.

Brent crude rose as much as $3.48 to $71.75 a barrel before trading 1.3% higher at $69.17.

Bianca Botes, treasury partner at Peregrine Treasury Solutions, said that strong data from the US on Tuesday once again demonstrated the resilience of the world’s largest economy, lending support to the dollar. Data showed that US GDP is on pace to rise more than 2% for the fourth quarter.

The rand came under pressure overnight after a fairly good performance during early trade on Tuesday, Botes said.

She noted that the EU is set to release business climate and consumer sentiment on Wednesday, while the US will release ADP non-farm employment change numbers for December.

“We will also be keeping an eye on the ANC’s January 8 statement today which is likely to provide an indication of governing party policy as we head into 2020,” Botes said.

The rand traded at the following levels against the major currencies:

  • Dollar/Rand: R14.34  (0.22%)
  • Pound/Rand: R18.82  (0.22%)
  • Euro/Rand: R15.99  (0.20%)

Read: Here’s where the rand could go in 2020

 

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Weaker rand eyes US-Iran conflict as oil prices jump