JOHANNESBURG – The South African rand weakened on Tuesday as investors weighed geopolitical tensions linked to the Iran war, while investors digested weak domestic business confidence data and central bank warnings about inflation risks linked to the conflict.
At 1511 GMT, the rand was trading down about 0.3% at 16.4175 per dollar after being flat in early trading.
On the domestic front, business confidence fell to a five-month low in March, with the South African Chamber of Commerce and Industry's business confidence index slipping to 131.3 from 134.6 in February, hit by a weaker rand and slower trade.
South Africa's central bank said on Tuesday the Iran war posed a real risk of a reversal in the country's inflation trajectory, with the country likely to raise interest rates twice this year.
The central bank said it still expects inflation to remain within the tolerance band of 1 percentage point above its 3% inflation target.
The US dollar rose on Tuesday, supported by hopes that a ceasefire in the conflict with Iran could ease the earlier risk appetite for emerging market currencies.
Like other risk-sensitive currencies, the rand often takes cues from global drivers. The local currency has been at the mercy of global market sentiment since the start of the US and Israeli war on Iran in late February.
“With risk aversion waning in April, the rand and other commodity currencies have seen some strength this month, still weaker than before the war began, although advanced economies are generally stronger,” said Annabel Bishop, chief economist at Investec.
The top-40 index on the Johannesburg Stock Exchange was down 1.47%.
South Africa's benchmark 2035 government bond weakened as the yield rose 9.5 basis points to 8.44%.