The Middle East tension has become just another new normal.
Image: Graphic: Nicola Mawson | IOL
Middle East turmoil is increasingly becoming part of the background for global markets, with renewed flare-ups still moving oil prices and the dollar but eliciting a more muted response from the rand.
The local currency has traded in a relatively narrow range of between R16 and R16.50 to the US dollar since early May, despite recurring escalations in the Middle East and renewed concerns over shipping through the Strait of Hormuz, Trading Economics has noted.
TreasuryONE currency strategist Andre Cilliers said the dollar has also strengthened as investors seek safety during periods of heightened uncertainty.
Annabel Bishop, Investec chief economist, said the US dollar index had “reached its strongest point since June 2025, as risk aversion is elevated in global financial markets, although not to the degree of the disruption of US tariffs, but is preventing the rand from strengthening currently.”
Yet, the rand has remained around R16.30 and similarly has not lost much ground against the Euro or pound, or even the Yen, in the top half of emerging market currencies performance since the start of the war at the end of February, Bishop said.
Middle East turmoil had become part of the markets' background, “eliciting less of a response on flare-ups than before,” said Bishop.
That does not mean the conflict no longer poses a threat to the currency. Cilliers said the latest increase in geopolitical tensions and risk aversion had seen the rand weaken overnight to around R16.44, broadly in line with weaker emerging-market and commodity currencies.
The latest escalation has again threatened hopes of progress towards a ceasefire, with attacks on ships in the Strait of Hormuz and renewed concerns that the strategic shipping route could be closed, said Bishop.
Bishop described R16 to the dollar as a major resistance level that the rand could break once global risk aversion subsides and markets return to a risk-taking phase.
Such a shift would allow South Africa's improving fundamentals to have a greater effect on the currency. However, a rapid end to Middle East tensions remains unlikely.
“While the rand would attempt further strength on a winding down of the Middle East conflict, this is unlikely to happen quickly or easily, and the rand is still likely to average around R16.30 for the third quarter of 2026, although risks to this forecast prevail too,” Bishop said.
Trading Economics similarly noted that spillovers from geopolitical tensions to the rand had remained limited.
It attributed the currency's relative resilience to South Africa's improving macroeconomic fundamentals, including the South African Reserve Bank's policy credibility, stronger fiscal metrics and continued structural reforms.
The South African Reserve Bank raised interest rates in May for the first time in three years and Governor Lesetja Kganyago has maintained a hawkish stance, leaving open the possibility of further tightening should inflationary pressures persist, said Trading Economics.
South Africa's relatively low inflation environment had also limited the impact of the oil price shock to some degree, Bishop said.
Oil prices moved up overnight on the back of recent hostilities. Cilliers said oil moved up to around $85 a barrel amid escalating geopolitical risks and renewed disruption fears around the Strait.
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