Trouble for the rand
The rand and local markets are trading weaker at the start of the new week, weighed by the protracted Iran War and forecasts of higher inflation.
While the local unit has been trading in a relatively resilient range over the past few months, the range has moved higher.
According to Investec Chief Economist, Annabel Bishop, the rand’s range has now moved to between R16.45/$ and R17.05/$, starting the week around the R16.70 mark.
By 15h40 on Monday (18 May), the rand was trading at R16.59 to the dollar, R22.21 to the pound and R19.33 to the euro.
“Markets continue to show risk aversion towards the oil price shock, negatively affecting the rand,” Bishop said.
“While the domestic currency has seen less volatility versus past risk-off events, it remains in the bottom third of Emerging Market currencies from a performance perspective since the start of the war.”
This reflects a marked sell-off, she added.
For South Africa, the ongoing war in the Middle East has had a significant negative impact on local markets, with higher inflation becoming a forecast trend.
This is a result of the much higher fuel prices emanating from the conflict and the closure of the Strait of Hormuz.
The economic growth outlook for South Africa has also dimmed, Bishop noted, with economic expectations for 2026’s GDP growth dropping to 1.3% y/y from 1.6% y/y in March (Bloomberg).
Other forecasts, such as that of the International Monetary Fund (IMF), are lower at just 1.0% y/y.
The picture for interest rates has also flipped, with economists swinging from expectations of interest rate cuts at the start of the year to as many as three 25bp hikes before the end of 2026.
Statistics South Africa will release April inflation data on Wednesday, with analysts polled by Reuters expecting it to accelerate to 3.9% year on year, up from 3.1% in March.
Analysts have warned that domestic inflation could reach 5% if oil prices remain buoyant and the rand depreciates further.
Pressure at the pumps
The ongoing pressures in the Middle East are also miring forecasts for fuel price relief.
With oil prices averaging close to $90 a barrel year to date, sustained pricing above $100 a barrel will slowly push this higher.
The Central Energy Fund is reporting an over-recovery (ie, a likely cut) in the diesel price in June, but this may not last.
The latest over-recovery is due to international gasoil futures, which have been falling, and global demand is reported to have eased.
While the month is only around its mid-point, and the figures will likely see some change, this is broadly a positive outlook for diesel users.
However, Bishop flagged the unwinding of the R3.93/litre cut in the general fuel levy, with half to take effect in June, adding R1.97/litre to the diesel price.
There could be a push from the state to unwind the entire R3.93 cut if recoveries cement at R4.00 a litre, she said.
While this would prevent the need to account for R1.96 being added back in July, it would also almost entirely eat up the over-recovery for June, leaving a 48c/litre price cut.
Overall, this would be beneficial for South Africa’s growth prospects, Bishop said.
“A declining diesel price will be supportive of South Africa’s GDP growth, allowing it to come out closer to 1.5% y/y instead,” she said.
However, she cautioned that risks are to the downside, with fuel supply concerns on the length of the Strait of Hormuz’s closure.
For petrol, recoveries are trending towards neutral (currently -17cpl for Petrol 95), with the R1.50 tax reintroduction pushing pump changes towards an increase of R1.70 per litre.
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