Market News

May 25 (Reuters) – The South African rand strengthened in early trade on Monday supported by easing oil prices, as investors weighed the prospects of a breakthrough in U.S.-Iran peace negotiations ahead of a local interest rate decision later in the week.

At 0541 GMT the rand traded at 16.3375 against the dollar, about 0.8% up from its previous close.

Oil prices hit two-week lows on Monday on optimism that the U.S. and Iran were moving closer towards a peace deal even though both countries remained at odds over key issues.

On Saturday, U.S. President Donald Trump said Washington and Iran had “largely negotiated” an understanding on a peace deal that would reopen the Strait of Hormuz, which carried a fifth of global shipments of oil and liquefied natural gas before the conflict.

Domestically focused investor attention will be pinned on the central bank’s rate decision on Thursday. Economists at Nedbank expect the monetary policy committee to raise interest rates by 25 basis points, taking the repo rate to 7% and the prime rate to 10.50%.

“Our analysis suggests that inflation expectations are particularly sensitive to petrol price increases, and we therefore see a relatively high risk of second-round effects. As such, tightening monetary policy now would ensure that the inflationary consequences of the supply-side shock are temporary and likely minimise the need for more severe tightening later in the cycle,” the bank’s economists said in a research note.

Economic indicators due this week include the composite leading business cycle indicator on Tuesday, and producer inflation data on Thursday.

South Africa’s benchmark 2035 government bond also strengthened in early deals, as the yield fell 4.5 basis points to 8.635%.