The currency of South Africa weakened on Thursday as escalating tensions in the Middle East and rising oil prices dampened investor sentiment ahead of key domestic economic data.
The South African rand was trading at around 16.56 to the US dollar at 0653 GMT, roughly 0.4 percent weaker than its previous close.
The rand has been under sustained pressure in recent days, having shed more than three percent last week as higher global oil prices weighed on the outlook for the country’s import-dependent energy sector.
As a net importer of crude oil, South Africa is particularly vulnerable to spikes in global energy prices, which can fuel domestic inflation and widen the country’s trade deficit.
Market sentiment has also been shaken by rising geopolitical tensions after Iran warned that oil prices could surge dramatically following attacks on merchant shipping routes.
Iranian officials said the world should prepare for crude oil prices potentially reaching $200 per barrel after its forces struck merchant vessels on Wednesday, raising concerns about the security of vital shipping lanes.
The warning came as oil prices surged above US$100 per barrel amid reports of escalating attacks on oil and transport infrastructure across the region.
The International Energy Agency called for a significant release of strategic petroleum reserves to help ease what it described as one of the most severe potential oil supply shocks since the 1970s.
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Analysts say the situation could have far-reaching consequences for global financial markets, particularly for emerging-market currencies such as the rand, which tend to weaken when investor risk appetite declines.
“The key thing investors are watching is whether the Strait of Hormuz reopens, because that will likely determine whether oil prices settle down or continue climbing,” said Wichard Cilliers, head of market risk at TreasuryONE.
He added that the rand would likely remain volatile until there is greater clarity about the duration and scale of the conflict in the Middle East.
Investors are also focusing on a series of domestic economic indicators due later in the day that could provide insight into the strength of South Africa’s economy.
The South African Reserve Bank is expected to release fourth-quarter current account data, a key measure of the country’s balance of payments.
Later in the day, Statistics South Africa will publish figures for January mining output and manufacturing production, both closely watched indicators of economic activity in the resource-rich country.
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Meanwhile, government bonds also weakened in early trading. The yield on South Africa’s benchmark 2035 government bond rose about 13.5 basis points to 8.61 percent, reflecting investor caution.
Higher bond yields typically signal falling bond prices as investors demand greater returns amid rising risks and inflation concerns.
Analysts say the rand’s outlook in the near term will depend largely on developments in global energy markets and geopolitical tensions, as well as signals from upcoming domestic economic data releases.
