Despite the expulsion of South Africa’s ambassador to the United States and the escalating tensions between the two nations, the ZAR has staged a remarkable recovery at the start of the week. While the ZAR’s appreciation may not be as pronounced as that of other emerging-market currencies, it nonetheless offers a glimmer of hope, alleviating fears of a potential currency rout. In a commendable display of restraint, the South African government, led by President Ramaphosa, has opted for a conciliatory stance rather than retaliating against the expulsion. The president appears to have recognized that antagonizing the United States, a vital trading partner, would yield little benefit and only further strain relations. This measured response from the South African government is a welcome development, contributing to a partial de-escalation of the situation. One can only hope that the next ambassador will prove more adept at fostering relations that serve the nation’s broader interests.
However, the ZAR’s resurgence cannot be attributed solely to the government’s diplomacy. Significant shifts in the financial markets have also tilted sentiment in favour of the ZAR. The price of gold, for instance, has soared to yet another record high, a trend that could spur local miners to tap into previously uneconomical, hard-to-reach deposits. What once seemed unfeasible a few years ago now appears increasingly attractive. Adding to this momentum is the growing appetite for gold from the central banks of China and India—demand that has not gone unnoticed. China, in particular, has been steadily pivoting away from US Treasuries toward gold, signalling a deliberate move to diversify its reserves, reduce reliance on the US, and deepen ties with BRICS+ nations and its regional neighbours. This shift hints at the emergence of a bipolar global order in the long run. For now, though, if these trends persist, the ZAR stands to reap the benefits of rising commodity prices, positioning it as at least one winner in this evolving economic landscape.
ZAR Markets
The USD-ZAR market is caught between two trends. There has been a longer-term uptrend since September last year, which remains intact despite signs of it breaking down in January, when the shorter-term downtrend emerged. The pair is now trading near the diagonal support lines of both these trends; however, one of them may break down in the coming weeks. For both trends to hold up, the pair needs to trade higher in the coming days and drift back towards 18.4000. Should the market break lower towards the 18 handle, however, the uptrend will break down. This suggests the balance of risks is for the pair to consolidate with some topside drift in the near term, barring a strong ZAR-bullish catalyst.
Global FX Markets
The U.S. dollar remained subdued in Asia, as investors assessed the fallout from President Donald Trump’s aggressive tariff policies amid rising global trade tensions. The dollar index, tracking the currency against six key rivals, fell approximately 6% from its mid-January peak of 110.17, sitting at 103.44 after hitting a low of 103.21 the previous week. Weak sentiment surveys and fears of an economic slowdown triggered by Trump’s tariffs have weighed on the greenback, with Monday’s retail sales data—showing a modest February rebound after a 1.2% January drop—offering little support. The euro held steady at around $1.0919, buoyed by developments in Germany where the constitutional court on Monday cleared the way for a parliamentary vote on Tuesday on a 500-billion-euro ($544 billion) infrastructure fund and relaxed borrowing rules aimed at boosting defense and growth. This comes as central banks, including the U.S. Federal Reserve, Bank of Japan (BOJ), and Bank of England, are expected to hold rates steady this week. The Fed’s upcoming economic projections will shed light on its view of Trump’s policies, with Citi strategists suggesting a dovish tilt, anticipating the Fed might prioritize growth and employment over inflation concerns, with markets pricing in roughly 60 basis points of rate cuts for 2025. In Asia, the yen softened to 149.3 against the dollar, up 0.07%, retreating from a recent peak of 146.545 as the BOJ began its two-day meeting to evaluate U.S. trade war risks to Japan’s economy, a factor influencing the timing of its next rate hike—widely expected later this year. Sterling traded at $1.2985, just shy of a recent high, while Australia’s central bank signaled caution on further easing after a recent rate cut, supporting the Aussie dollar at $0.6383. The New Zealand dollar rose to $0.58265, its highest since December 10, amid optimism over China’s consumption-boosting plans, reflected in firmer retail sales