Rand and other emerging currencies hit after US drone strike

South Africa’s rand and other emerging market currencies took a hit on Friday (3 January) after a US airstrike killed a top Iranian commander.

Iranian Major-General Qassem Soleimani, head of the elite Quds Force, died in an airstrike strike on Baghdad airport, prompting Iran’s Supreme Leader Ayatollah Ali Khamenei to vow harsh revenge, Reuters reports.

This crisis in the Middle East has taken centre stage in the markets as risky assets in the developing world slipped on Friday. MSCI’s index for emerging markets stocks dropped 0.2%, while developing market currencies fell 0.3%.

Among currencies, the rand was 1.75% weaker against the dollar, its softest level since 23 December 2019.

“This is certainly going to be the main driver for the next day or two. All hinges are now on how Iran responds,” said Jason Tuvey, senior emerging markets economist at Capital Economics in London.

“There is obviously a concern that this could call for confrontation in the region.”

The rand traded at the following levels against the major currencies at 12h50 on Friday:

  • Dollar/Rand: R14.35  (1.75%)
    Pound/Rand: R18.76  (1.32%)
    Euro/Rand: R15.97  (1.43%)

Read: Rising emigration a threat to South Africa’s shrinking tax base

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Rand and other emerging currencies hit after US drone strike