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Corporate and Investment Bank
Standard Bank Group
South Africa FX 03 June 2026

FX Monthly Chart Book

Shireen Darmalingam

  • The rand appreciated modestly during May 2026, although trading was volatile and driven more by global developments than by domestic fundamentals. Over the month, the currency strengthened by roughly 3% against the dollar, ending at R16.22/$, close to its strongest level since mid-April. The rand gained 3.6% against the euro and 4% against the pound in May. The RUB, ZAR, PEN, HUF and CLP were among the best performing EM currencies, while the IDR, KRW, RON, BRL and TRY were among the worst performing EM currencies.
  • The rand's appreciation was largely supported by external factors. Periods of improved global risk sentiment, particularly when geopolitical tensions in the Middle East appeared to ease and/or progress was made in negotiations with Iran, underpinned emerging market currencies, including the rand. Domestically, a shift towards tighter monetary policy by the SARB helped to anchor inflation expectations and supported rand strength. An uptick in inflation to around 4% further reinforced expectations of further policy tightening, too lending support to the rand. SARB Governor Lesetja Kganyago noted this week that the central bank remains firmly committed to returning inflation to its 3% target despite rising price pressures from the Middle East conflict and higher oil costs. He emphasised that the recent rate hike was a deliberate move to prevent second-round effects, such as spillovers into food prices and broader inflation, from becoming entrenched, and to keep inflation expectations anchored.
  • However, the currency's performance remained uneven, highlighting the presence of offsetting pressures. Heightened geopolitical risk related to the Iran conflict periodically triggered “risk-off” episodes, boosting the dollar and weighing on emerging market currencies. In addition, higher oil prices, driven by the conflict, added to SA's import bill and inflation outlook, posing headwinds to the rand. A broadly firm dollar and expectations of relatively elevated US interest rates also constrained gains by preserving a rate differential in favour of the dollar. In addition, softer commodity prices, particularly for key exports such as precious metals, limited the scope for further rand appreciation.
  • Looking ahead, the rand remains highly dependent on external drivers, particularly global risk sentiment, commodity price trends, and US monetary policy expectations. While continued inflows into emerging markets and firm commodity prices should support the currency, the risks remain skewed to sudden reversals should geopolitical tensions intensify, oil prices rise further, or the US Fed adopt a more hawkish stance. Overall, the rand is likely to remain sensitive to global developments, with volatility expected to persist even as its underlying tone remains relatively firm.
  • We see the rand ending the year at R16.35/$ and R16.75/$ by the end of 2027. The rand's movements will continue to be driven to a large extent by developments around the Iran war.
 

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