Brent holds above $100 as Fed hike lifts the rand to a two-year best

Brent crude held above $100 a barrel this week after the US Federal Reserve raised interest rates, a combination that would normally knock the rand and emerging market assets harder than it has. Instead the local currency held its ground against the dollar, the euro and the pound, and the JSE absorbed the news without the selloff that usually follows a Fed tightening.

As Moneyweb reported on 17 September, Sanlam Private Wealth’s Nick Kunze discussed the Fed’s decision, the oil price, supply risks and the market response on SAFM’s market update. The facts he set out are the starting point. What follows is what they mean for a South African reader who has not been following the overnight wires.

What the Fed did, and why it matters here

The US central bank raised its policy rate, tightening the cost of money in the world’s largest economy. When US rates rise, global investors are paid more to hold dollars, so money tends to leave emerging markets and head home. That is the textbook move, and it is the one South African borrowers, savers and importers brace for every time the Fed meets.

This time the rand did not fold. It held firm against the major currencies, which is the detail that matters most for anyone filling a tank, pricing stock or paying an overseas supplier.

A stronger rand does not make petrol cheaper on its own. The fuel price is set monthly by the Department of Mineral Resources and Energy, and it tracks both the international oil price and the rand exchange rate. When the oil price is above $100 and the rand holds steady, the currency is doing the work of keeping the increase from being worse than it could have been. That is the number ordinary South Africans will see at the pump at the start of next month.

Oil above $100, and the supply risk behind it

Brent crude staying above $100 is not a single event. It is a level, held, and it reflects supply risk in the oil market rather than a sudden surge in demand. Supply risk is exactly the kind of thing that keeps a price high even when the headlines move on, because traders are pricing the chance that something goes wrong, not the thing itself.

For South Africa, the transmission is direct. Diesel and petrol are imported at the international price and paid for in dollars. Every rand of weakness adds to the landed cost, and every dollar of oil above the threshold adds to it again. The two together are what the fuel price formula captures.

The rand’s resilience, and what it says

A currency that holds its ground through a US rate hike and an oil price above $100 is telling the market something. It says foreign investors are not, for now, treating South Africa as the first place to sell. Global flows into emerging markets, if they come, would land partly here.

The JSE, local bonds and the rand were all part of the picture Kunze set out. Bond yields matter because they are the price the government pays to borrow, and every basis point of that cost is money that does not go to a clinic, a road or a school. A rand that holds is a small but real line of defence in that budget.

None of this is a guarantee. A single Fed meeting does not set a trend, and the oil price can move on a single supply headline. What the week showed is that the local currency absorbed a difficult combination better than the textbook predicted, and that is worth stating plainly.

What a South African reader should watch

The next fuel price adjustment, announced by the Department of Mineral Resources and Energy and effective at the start of October, will show whether the rand’s resilience is enough to offset the oil price. The next Fed meeting and the next reading on global oil supply will set the direction after that.

For now, the level to watch is simple. Brent above $100 is the pressure. The rand holding against the dollar is the cushion. Both are moving, and the gap between them is what lands in the fuel price.

Source: Moneyweb, Brent crude stays above $100 (https://www.moneyweb.co.za/moneyweb-radio/safm-market-update/brent-crude-stays-above-100)