Rand Crashes to Most Volatile EM Currency – Brace for June Fuel Hike
Rand Crashes to Most Volatile EM Currency – Brace for June Fuel Hike
The rand has become the most volatile emerging market currency due to the Iran War and local political risks. With oil prices rising and rate hikes expected, here is how it affects your pocket.
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Introduction: The Rand’s Risky New Title
JOHANNESBURG – South Africans waking up to check the exchange rate on Tuesday morning saw a familiar but unwelcome sight: the rand was taking a beating.
But this time, there is a new and concerning label attached to the local currency. According to Bloomberg‘s ranking of implied volatilities, the rand has become the most volatile Emerging Market (EM) currency in the world.
This means that for international investors, the rand is currently one of the riskiest units to hold. The question every South African should be asking is: Why, and what does this mean for my cost of living?
The Numbers: How Volatile Is the Rand Really?
According to Annabel Bishop, Chief Economist at Investec, the rand’s volatility was scored at 13.73. While this is actually down from its March peak of 21.13, it is still high enough to top the EM ranking.
| Metric | Current Level | Previous Peak (March) | Direction |
|---|---|---|---|
| Volatility score | 13.73 | 21.13 | ↓ Improving |
| EM ranking | #1 (most volatile) | #1 (most volatile) | Unchanged |
| Credit Default Swap (CDS) | 146bp | 200bp | ↓ Improving |
Key Insight: While volatility and credit risk have eased slightly since March, South Africa remains the riskiest bet among emerging markets right now.
Bishop notes that this reflects financial markets being “less risk-off” than at the end of March, but they are still experiencing significant volatility.
Why Is the Rand So Volatile? Two Main Drivers
The rand’s volatility is not coming from a single source. It is being pulled in two directions simultaneously:
1. The Iran War & Oil Prices (Global Factor)
The ongoing conflict in the Middle East is the primary driver of risk-off sentiment.
Key developments:
- The Strait of Hormuz remains closed
- Iran refuses to give up its nuclear facilities or sovereignty over the Strait
- Iran is demanding reparations from the US and an end to sanctions
- The US has rejected Iran’s terms
The market reaction:
- Brent crude oil price reached $106 a barrel before dropping back below $105
- Markets are now concerned the Strait will remain closed until the second half of the year
- Concerns are rising about oil and petroleum product supply
Warning for consumers: Another fuel price increase is building for June, which will add further inflationary pressure.
2. Phala Phala & Local Politics (Domestic Factor)
Renewed focus on local politics is also contributing to the rand’s volatility.
Timeline of recent events:
- 8 May (last Friday): Constitutional Court ruled Parliament’s 2022 vote to sideline the Phala Phala report was unconstitutional
- The matter should have moved to an impeachment committee
- Calls for President Ramaphosa to resign have intensified
- 11 May (Monday night): Ramaphosa announced he will not resign and will instead challenge the independent panel’s report
Economist’s take (Annabel Bishop):
“Having Ramaphosa stay on has relieved financial markets, as the alternatives would have been negative.”
Why? Ipsos polling has shown that Deputy President Paul Mashatile is not a popular choice to run the country in the future.
The Credit Default Swap (CDS) Picture
South Africa’s credit default swap (CDS) reading is currently at 146 basis points (bp) , down from 200bp in late March.
| What CDS Measures | Interpretation |
|---|---|
| The cost of insuring against South African government default | Lower is better |
| 146bp | Down from 200bp (improving) |
| Still elevated | Markets are still risk-off |
Translation: While the situation has improved slightly since March, international investors still see South Africa as a risky bet.
How the Interest Rate Differential Helps the Rand
There is one factor currently supporting the rand: interest rates.
| Factor | Current Status |
|---|---|
| US interest rate hikes | Fully priced in by markets (no more expected in 2026) |
| SARB interest rate trajectory | Higher than the US (rate hikes pencilled in) |
Why this matters:
A higher interest rate differential (SARB rates higher than US rates) makes South African assets more attractive to foreign investors seeking yield. This tends to support the rand and allows for less depreciation despite the Middle East war.
Live Exchange Rates (As of Tuesday 09h30)
The rand was trading weaker against major currencies:
| Currency Pair | Exchange Rate | Change |
|---|---|---|
| USD/ZAR | R16.55 | -0.9% |
| GBP/ZAR | R22.41 | -0.5% |
| EUR/ZAR | R19.45 | -0.6% |
All three major pairs show the rand losing ground.
What This Means for South African Consumers
When the rand is volatile and weak, several things happen to your wallet:
1. Fuel Prices Go Up
- South Africa imports oil in dollars
- A weaker rand means more rands for every barrel
- Another fuel price increase is building for June
2. Imported Goods Become More Expensive
- Electronics, clothing, machinery, and vehicle parts
- Inflationary pressure builds across the board
3. Interest Rate Pressure Increases
- Higher inflation leads to SARB rate hikes
- Bond holders, car financiers, and credit card users feel the pain
4. Foreign Travel Becomes More Expensive
- Your rands buy fewer dollars, pounds, or euros
What Happens Next? The Outlook
| Scenario | Probability | Impact on Rand |
|---|---|---|
| Strait of Hormuz remains closed | High (until H2 2026) | Negative – oil stays high |
| SARB hikes rates | High (25bps expected) | Supportive (yield attraction) |
| Phala Phala saga escalates | Medium | Negative (political risk) |
| Ramaphosa stays on | High (confirmed) | Positive (relief) |
| US rejects Iran terms | Already happened | Modest market reaction |
Economist’s warning:
“Concerns are now rising about oil and petroleum product supply. Markets are now concerned that the Strait of Hormuz will remain closed until the second half of the year.”
Frequently Asked Questions
Why is the rand the most volatile EM currency?
The rand ranks highest in Bloomberg’s implied volatility rankings due to a combination of global risk-off sentiment (Iran War), local political uncertainty (Phala Phala), and South Africa’s structural economic challenges.
What is implied volatility?
Implied volatility measures the market’s expectation of how much a currency’s exchange rate will fluctuate in the future. Higher implied volatility means higher perceived risk.
Has the rand’s volatility improved since March?
Yes. The volatility score has dropped from 21.13 in March to 13.73 currently. However, South Africa still tops the EM ranking.
What is a Credit Default Swap (CDS)?
A CDS is like an insurance policy against a country defaulting on its debt. South Africa’s CDS is at 146bp, meaning
It costs $146,000 annually to insure $10 million of South African government debt.
Will the SARB hike interest rates?
Markets expect rate hikes to be pencilled in for South Africa, while US rate hikes are fully priced in. This interest rate differential supports the rand.
How does the Phala Phala saga affect the rand?
Political uncertainty makes international investors nervous. The Constitutional Court ruling has revived the impeachment process, creating renewed risk. However, Ramaphosa’s decision to stay on has provided some relief.
The rand has earned an unwanted title: the most volatile emerging market currency in the world. While volatility has eased from its March peak, the combination of the Iran War, rising oil prices, and local political risks means South Africans should brace for continued currency swings.
Three things to watch:
- The Strait of Hormuz – If it remains closed until H2 2026, oil stays high
- The Phala Phala process – Any escalation will hit the rand
- The SARB’s next move – Rate hikes may support the rand but hurt borrowers
For now, the rand remains on a rollercoaster. Buckle up.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Currency trading and foreign exchange carry risk. Always consult a licensed financial advisor before making investmen
