Good morning,

On the wires…

·         Tshwane adopts report to suspend city manager Johann Mettler

·         Ramaphosa condemns rift between Crime Intelligence, IDAC

·         Rescuers search rubble for survivors as Venezuela earthquakes kill at least 235

·         Iran strikes vessel, pausing UN efforts to evacuate ships from Hormuz

·         Proteas boost net run rate with big win over the Dutch

·         FIFA WC: Ecuador shock Germany, Australia book last-32 berth, Turkey edge US as Curacao crash out

Quote of the day

“When the axe came into the forest, the trees said: the handle is one of us” – Turkish Proverb

The indicators

Currency crackdown…

FXOne would like to thank CHAT GPT Pro for its unbiased contribution to the dose this morning.

The currency remained relatively resilient, but it struggled to gain meaningful ground as a firmer US dollar, hawkish Federal Reserve expectations and ongoing geopolitical risks kept pressure on emerging-market currencies.

Against the US Dollar (USD)

The rand was broadly range-bound to slightly weaker against the dollar over the week. USD/ZAR traded mainly around the mid-R16s, with the rand unable to break materially stronger despite still being well-supported compared with earlier periods in the year. The key driver remains the US dollar. Markets remained focused on the Federal Reserve’s interest-rate outlook, with investors continuing to price in a more cautious and hawkish Fed stance.

For the rand, this is negative because:

• Higher expected US rates increase demand for dollar assets.
• Emerging-market currencies become less attractive on a relative yield basis.
• A stronger dollar usually reduces global risk appetite.

As a result, the rand’s weakness was not mainly caused by negative local developments, but rather by a stronger dollar and a more defensive global market tone.

Against the Euro (EUR)

The rand was relatively stable to slightly softer against the euro. EUR/ZAR did not move as aggressively as USD/ZAR because the euro itself was also affected by the stronger dollar. However, the euro also remained supported by expectations that European interest rates are likely to stay relatively firm for now.

In practical terms:

• The stronger US dollar limited euro strength globally.
• However, euro interest-rate expectations prevented the euro from weakening significantly.
• This left EUR/ZAR fairly stable, with a mild bias in favour of the euro rather than the rand.

The rand therefore performed better against the euro than it did against the dollar, but there was still no major rand-strengthening catalyst.

Against the British Pound (GBP)

In an almost identical story to the EUR, the rand was also broadly stable to slightly weaker against the pound. Sterling remained supported by the view that UK interest rates may stay elevated for longer, even though the UK economic backdrop remains mixed.

For GBP/ZAR, the main points were:

• The pound was not aggressively sold off during the week.
• UK rate expectations continued to provide some support to sterling.
• The rand lacked a strong domestic catalyst to outperform.

South African economic factors

On the domestic side, the most important factor was South Africa’s inflation data. South African CPI rose to 4.5% in May from 4.0% in April, mainly due to higher fuel prices. This matters because fuel inflation feeds into transport costs, consumer prices and inflation expectations.

However, the inflation print did not create a strong rand-supportive catalyst. While higher inflation can sometimes support a currency if it increases the chance of higher interest rates, the market did not treat this as a clear sign that the SARB would become more aggressive.

The local backdrop therefore remained mixed:

• Inflation moved higher, mainly due to fuel.
• Higher fuel prices are negative for South Africa because the country is a net oil importer.
• The SARB is still likely to remain cautious.
• Local data was not strong enough to offset global dollar strength.

Global risk sentiment

Geopolitical risk and oil prices also remained important themes during the week. Markets continued to monitor Middle East tensions and the impact on oil prices. This is relevant for the rand because South Africa imports a large portion of its fuel requirements.

Higher oil prices are generally negative for the rand because:

• They worsen South Africa’s import bill.
• They add pressure to inflation.
• They reduce the likelihood of a more comfortable interest-rate environment.

Even where oil prices eased at points, the risk premium remained in the market, which prevented a cleaner risk-on move in favour of emerging-market currencies.

Key takeaway

Overall, the rand held up reasonably well over the week, but the tone was more defensive than positive. The rand remains in a relatively stronger position compared with earlier periods, but for now it appears to be consolidating around the mid-R16s against the dollar.

On the radar…

·         USD – FOMC Members Speak

·         All – US-Iran War

• EUR – German Buba President Nagel Speaks

Did you know?

The Amazon is thought to be home to 10% of known species on earth.