The South African rand surged more than 3% against the dollar on Wednesday after the United States and Iran agreed to a two-week ceasefire. The JSE Top-40 index climbed 6.2% in early trade, its best session in years.
Why it matters: South Africa imports all of its oil. The 15% plunge in crude prices directly reduces the cost of fuel imports and eases the inflationary pressure that has squeezed households for months. A sustained drop in oil would improve the country’s current account balance and take pressure off the Reserve Bank.
The numbers
By midday, the rand was trading at R16.32 to the dollar, up from around R16.80 at Tuesday’s close. It was the currency’s strongest level in nearly a month. The JSE All Share index rose 4.9%, while the Top-40 gained 6.2%.
Brent crude fell to around $93 per barrel, down from $111 before the ceasefire was announced. West Texas Intermediate dropped below $95.
Emerging-market leader
According to Bloomberg, South Africa led the rebound across emerging markets. The rand is often seen as a bellwether for the asset class because of its liquidity and sensitivity to global risk appetite.
Analysts noted that South African assets had been disproportionately hit during the Iran crisis. The unwinding of risk-off positions was therefore expected to benefit the country more than most peers.
Caution ahead
The ceasefire is only two weeks long. Traders warned that a failure to extend it or reach a broader deal could reverse the gains quickly. The JSE lost R3 trillion in March alone during the worst of the oil shock.
South Africa’s fuel price for May, due to be set on 6 May, will be heavily influenced by whether the ceasefire holds and how far oil prices retreat in the coming days.