The rand is under pressure as markets pause ahead of a critical deadline for the US-Iran war.
Ten days ago, US President Donald Trump set a deadline for Iran to reopen the Strait of Hormuz. Failing to do so would result in “Hell” raining down on the Middle Eastern nation, he said.
Over the Easter weekend, Trump again warned Iran, noting that time was running out, with the deadline set to expire at 20h00 on Tuesday (7 April), Washington time (02h00 SAST).
This deadline is now hours away.
According to Investec Chief Economist, Annabel Bishop, the rand has come under pressure, but remained around R16.90/$ over the past week or so, “taking a breather” from recent volatility.
However, this isn’t expected to last, and the next moves will depend heavily on what follows Trump’s threats.
Bishop said that, with the deadline looming, financial markets await the next stage of the war, as the US threatens to intensify if the Strait is not fully opened.
Posting to social media again on Tuesday, Trump threatened that “a whole civilisation will die tonight, never to be brought back again,” keeping the pressure on Iran, and pointing to further escalation.
“This would place additional pressure on fuel prices, and likely weaken the rand against the US dollar…in turn resulting in greater inflationary pressures, if it occurs,” Bishop said.
She added that oil prices continue to trade above $110 a barrel, averaging $107 this month.
This has pushed fuel prices deeper into another staggering under-recovery—albeit still early in the month—of R4.70 per litre for petrol and over R13 per litre for diesel.
If these prices hold, diesel costs in particular will weigh heavily on headline inflation, especially food prices.
“National Treasury has already indicated that it has limited ability to absorb cost increases from the impact of the Middle East war, and further fuel price rises will add pressure to the inflation and interest rate outlook,” Bishop said.
South Africans will feel it at the tills
Food production has a high diesel cost factor due to harvesting, planting, and crop transport.
“Margins for the production of food in South Africa are already tight, with cost absorption not expected from producers for PPI inflation,” she said.
“Diesel costs make up near 20% of agricultural production costs and are significant, driving up the prices of grain, the staple food in South Africa.”
For CPI inflation, retailers will face pressure and cannot absorb the cost increases at the margin, she added.
The economists stressed that much of the uncertain path ahead depends on the duration of the war, particularly the length of time the Strait of Hormuz remains unable to function fully.
This factor is critical, as it affects fuel prices and how long global markets will remain in a risk-off phase.
Looking at Investec’s scenario modelling, the base case is that the rand will average around R16.90/$ in the second quarter of the year, moving lower towards R16.20/$ near the end of the year.
However, this outlook assumes global geopolitical tensions do not intensify or escalate.
In the next most likely scenario—the ‘Lite down case’—the rand weakens towards R18.60 by the end of the year.
This case isn’t explicitly tied to the war or geopolitical escalations, but rather to how South Africa’s broader economy performs, including high inflation, rand weakness, and other local factors.
Unfortunately, the longer the war goes on and the more it escalates, the more likely it is that South Africa’s economy will suffer from global knock-on effects.
Bishop previously warned that an extended war risks hurting South Africa’s economy, which is only recently climbing out of years of stagnation.
