Why the Rand had a surprisingly strong month in May

The headlines pointed one way. The Rand moved another.

If you had only looked at the headlines during May, you would probably have expected the Rand to end the month weaker.

The war involving Iran dominated global markets. Oil prices surged, and South African motorists faced one of the sharpest fuel price increases in recent years. Inflation accelerated, and the South African Reserve Bank (SARB) raised interest rates. Across global markets, investors repeatedly shifted between risk-on optimism and risk-off caution as developments in the Middle East unfolded.

Yet despite all of this, the Rand finished the month stronger against both the US Dollar and sterling

Why the Rand strengthened despite global turmoil

Using 29 May as the final trading reference point, USD/ZAR moved from 16.666 at the start of the month to 16.222 by month-end, while GBP/ZAR fell from 22.628 to 21.828. This means the Rand strengthened by roughly 2.7% against the Dollar and 3.5% against the Pound over the course of May.

Meanwhile, GBP/USD weakened slightly, indicating that the move against sterling was driven primarily by Rand strength rather than a particularly strong Pound.

The obvious question is: why?

The answer lies in the interaction between global shocks and local policy credibility. May demonstrated that the Rand increasingly behaves as a global risk-sensitive currency. Events in Washington, Tehran and the Strait of Hormuz often mattered as much as developments in Pretoria or Johannesburg. At the same time, local policy decisions helped reassure investors that South Africa could navigate an increasingly uncertain international environment.

Why the Middle East mattered to South Africa

For many South Africans, the conflict involving Iran may have seemed geographically distant. Financial markets saw it differently.

The most important transmission channel was oil.

As tensions escalated and concerns grew around disruptions to shipping through the Strait of Hormuz, energy markets reacted sharply. Because South Africa imports most of its crude oil requirements, higher global oil prices quickly translated into higher domestic fuel costs

The impact was immediate. Petrol prices increased by R3.27 per litre and diesel prices rose by R6.19 per litre from 6 May, even after the government extended temporary fuel levy relief measures. Behind these increases was a sharp rise in the average Brent crude oil price, which climbed from around $93.67 to $101 over the review period.

That matters because fuel affects almost every part of the economy. Higher transport costs eventually influence food prices, logistics costs and business operating expenses. As a result, oil price shocks often become inflation shocks.

That process was already visible during May. Statistics South Africa reported that headline inflation accelerated to 4.0% year-on-year in April, up from 3.1% in March, with fuel prices making a significant contribution to the increase. SARB responded by raising the repo rate by 25 basis points to 7.0%, while warning that a prolonged Middle East conflict could create further inflationary pressure through higher oil and food prices and a weaker currency.

The significance of the rate hike was not simply that borrowing costs increased. Rather, it signalled that the SARB remained committed to maintaining price stability despite growing external pressures. In a month characterised by uncertainty, that commitment mattered to investors.

A currency driven by global sentiment

The daily movements in the Rand throughout May tell an important story.

Early in the month, markets grew increasingly optimistic about a diplomatic breakthrough between the US and Iran. As risk appetite improved, the Rand strengthened.

That optimism faded as uncertainty returned. Investors became more cautious, the Dollar strengthened, and the Rand weakened.

Later in the month, expectations of renewed negotiations helped the Rand recover. When military action resumed and confidence in a ceasefire diminished, the currency again came under pressure.

The pattern was remarkably consistent.

When geopolitical tensions appeared to be easing, investors became more willing to hold emerging-market assets, and the Rand strengthened. When uncertainty increased, money flowed back into traditional safe-haven assets, and the Rand weakened.

This highlights an important reality for businesses and individuals managing foreign exchange exposure. The Rand's movements are increasingly driven by global risk sentiment rather than purely domestic developments. While South African economic data remains important, it is often international events that determine the direction of short-term currency moves.

Rand held up better than expected

Given the challenging global backdrop, it is reasonable to ask why the Rand did not weaken more significantly.

Part of the answer lies in South Africa's improving policy narrative.

The National Treasury's 2026 Budget presented a more encouraging fiscal picture than many investors had anticipated. The government argued that public debt had stabilised relative to GDP and confirmed that previously proposed tax increases had been withdrawn. While fiscal challenges remain substantial, the overall message was one of improving discipline and stability.

Perhaps even more important was Moody's decision to revise South Africa's sovereign outlook from stable to positive while maintaining its Ba2 rating. The ratings agency cited stronger fiscal performance and continued reform progress, while expressing confidence that broader macroeconomic stability could be maintained despite external risks.

These developments did not eliminate South Africa's economic vulnerabilities. Economic growth remains modest, unemployment remains exceptionally high, and structural challenges persist across multiple sectors of the economy.

However, investors are often more concerned with direction than perfection.

The combination of fiscal stability, reform progress and central bank credibility helped create a degree of confidence that South Africa was moving in the right direction. In a month dominated by external risks, that confidence provided important support for the Rand.

The role of the Dollar and sterling

The international backdrop also helped shape currency performance.

The Dollar remained supported by two powerful factors. First, investors continued to view it as a safe-haven asset during periods of geopolitical uncertainty. Second, persistent inflation pressures reduced expectations that the Federal Reserve would cut interest rates aggressively in the near term.

US inflation remained elevated during May, while employment data continued to point to a resilient economy. As a result, markets increasingly accepted that US interest rates could remain higher for longer. That provided ongoing support for the Dollar.

Sterling experienced a somewhat different month.

While UK inflation moderated, concerns about energy prices and the broader consequences of the Middle East conflict kept the Bank of England cautious. Expectations for UK interest rates remained relatively stable, and sterling lacked a strong independent driver against the Dollar. Consequently, most of the movement in GBP/ZAR reflected developments in South Africa rather than major shifts in the Pound itself.

For South African clients, this distinction is important. A weaker GBP/ZAR rate does not necessarily mean sterling is weak globally. Sometimes it simply means the Rand is performing better.

What May taught us

The clearest lesson from May is that the Rand now sits at the intersection of global and local forces.

International developments created significant pressure. The conflict involving Iran pushed oil prices higher, fuelled inflation concerns and increased market volatility. Those forces would normally have been expected to weigh heavily on South Africa's currency.

Yet domestic factors helped counterbalance those risks. The SARB reinforced its inflation-fighting credibility. Fiscal messaging improved. Moody's delivered a positive signal to international investors. Together, those developments helped limit the damage from external shocks and ultimately supported a stronger Rand by month-end.

For clients making international payments, the broader lesson is perhaps even more important. The drivers of the Rand increasingly extend far beyond South Africa's borders. Oil markets, geopolitical tensions, central bank expectations, and global investor sentiment can all influence exchange rates within a matter of days.

May was a reminder that the Rand can recover strongly even during periods of global uncertainty. But it was also a reminder that the currency remains highly sensitive to changes in the international environment. As long as questions remain around the Middle East, global inflation and the future path of interest rates, currency markets are likely to remain volatile.

That means managing exchange-rate risk remains just as important as trying to predict where currencies might move next.

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