Rand strengthens as investors assess election outcome

The rand strengthened against the US dollar on Monday, 9 November as falling oil prices eased inflation concerns, while investors assessed the outcome of South Africa's local government elections and the coalition negotiations that followed.

The currency was trading at about R16.49 to the dollar during morning trade, compared with approximately R16.52 at Friday's close.

The improvement came as international oil prices extended their decline following comments by US President Donald Trump that further American attacks on Iran were unlikely if negotiations to end the conflict continued to progress.

Brent crude, the international oil benchmark, fell 1.5% to $96.91 a barrel in early trading on Monday. US West Texas Intermediate crude dropped 1% to $89.85.

Brent had fallen 16% during the previous week, its steepest weekly decline since the start of the Covid-19 pandemic, according to Reuters.

South Africa is a net importer of petroleum products, making the rand and international oil prices important determinants of its fuel import costs.

Lower crude prices could ease pressure on inflation and eventually create room for lower fuel prices.

However, the benefit to consumers will also depend on the exchange rate and other components of the domestic fuel-price calculation.

Investors were also watching the political implications of the local government election results, particularly the coalition negotiations following the ANC's losses in major metropolitan municipalities.

The negotiations could influence investor confidence as parties work towards forming administrations in municipalities where no party secured an outright majority.

However, global economic developments remain a potential source of pressure.

Stronger than expected US employment figures have increased expectations that the Federal Reserve could raise interest rates in December, supporting the dollar and potentially limiting gains in emerging-market currencies.

The rand's performance will therefore remain exposed to movements in international oil prices, US monetary policy and developments in the Middle East.

Despite Monday's improvement, uncertainty surrounding the conflict with Iran remains a risk to global energy supplies.