Diplomatic Spat With U.S. Helps Push USD/ZAR To New Record Highs

USD/ZAR has extended its sharp rally as headwinds for the rand fail to abate, with the rate hitting fresh all-time highs at ZAR19.5148 as a result. The rate last deals at ZAR19.4346, up ~2,300 pips on the day, with the psychological ZAR20.00 figure in sight. Bears look for a pullback past May 2 high of ZAR18.5075.

• Growing difficulties with treading a tightrope between Russia and the U.S., idiosyncratic logistical crisis (particularly around persistent load-shedding) and worrying signals on China's economic recovery have all contributed to the latest bout of rand weakness.
• The latest spat with the U.S. threatens South Africa's relations with its second-largest trading partner after China. It escalated after the U.S. ambassador expressed confidence that South Africa provided ammunition to Russia despite Western efforts to isolate it amid the ongoing war in Ukraine.
• Local-currency bonds have extended their rout and are notably weaker across the slightly flattened curve. South Africa's 10-year breakeven inflation rate yesterday surpassed 7.00% for the first time since early November. It last sits at 7.12%, close to the cyclical high printed at 7.18% yesterday.
• The FTSE/JSE Africa All Share Index has staged a strong rebound today, adding ~1.7% so far and more than erasing yesterday's losses. Local stocks have been supported by a strong performance from Richemont shares, which rose to record highs on the back of "spectacular sales growth" in FY23.
• The BBG Commodity Index is little changed at typing, while the precious metals subindex sits ~0.4% lower.