Rand slips as Trump's Iran move fuels dollar

A sustained break of the R12.70-level against the US dollar could open up the debate for the rand trading up to the R13.00 level, said TreasuryONE senior currency dealer Andre Botha.

The rand broke the level to trade at R12.72 against the greenback earlier in the session before recovering to trade at R12.62/$ by 11:50, still 0.46% lower than its overnight close in New York.

"We have seen a massive rally in the dollar in the past couple of weeks, but the rand has stayed firmly in mid-table when looking at its fellow emerging market (EM) brethren."

For Botha this suggests that it is the dollar play and not a rand specific issue that is driving the local currency at the moment.

"We need a let up of the current dollar momentum for the rand to catch a breather and start to retrace some of its losses," he added.

• READ: Crude surges after Trump tears up Iran deal, equities turn lower

Donald Trump

He explained that President Donald Trump pulling the US out of the Iran nuclear deal again creates geopolitical risk, which could have a detrimental effect on the world economy in terms of lower growth.

According to Lukman Otunuga, research analyst at FXTM, the rand was vulnerable to losses on Wednesday morning as the Dollar Index rallied to a fresh 2018 high.

"With the dollar heavily supported by rising US Treasury yields and expectations of higher US interest rates, emerging market currencies, including the rand, could feel the heat," he said.

In his view, the rand could challenge the R12.77/$ level in the near term "if bulls are able to conquer the R12.73-level".

Mpho Tsebe of RMB also flagged geopolitical tensions, citing Trump's Iran decision as a huge risk for global growth.

"Trump also said any country or entity that continues to work with Iran will be penalised. This could spark further geopolitical tensions as Europe has indicated its intentions to salvage the deal, while Iran has said it remains committed to the agreement.

"If Trump delivers on his promise and decides to impose sanctions on European entities, Europe will be compelled to retaliate, which poses significant risk to global growth," Tsebe said.

NKC Africa Economics expects the rand to trade in a narrow band between R12.45/$ and R12.65/$.