The South Africa rand and other EM currencies dipped at the start of Asian trading on Tuesday after Trump said he had paused a planned attack against Iran to allow negotiations.
The EM carry trade has bounced back from its Iran war losses as surging oil prices reinforce expectations that interest rates will stay elevated and bolster the commodity currencies.
A strategy of borrowing in the Swiss franc and investing in the Brazilian real since the end of February returned 6.65%, while funding in the yen and buying the Turkish lira delivered a gain of 7%, based on data compiled by Bloomberg.
BofA and Barclays are among the banks that recently abandoned their bullish positions on the lira, signalling concerns that Turkey's trade deficit will likely worsen due to ongoing energy supply disruption.
Traders are generally more positive about the South African rand as the central bank is expected to increase interest rates by 75 bps by the end of this year. South Africa is a major commodity exporter.
However, China's growth lost momentum in April, with industrial output cooling and retail sales sinking to over three-year lows. That means high input costs could eventually take a toll on demand.
The rand showed a multi-day bearish push that was forcefully halted exactly at 50 SMA. if that support level cannot hold, we see further declines towards 16.56 per dollar in the short term.
Asset recap
As of market close on 18 May, among EBC major products, ServiceNow shares led gains after receiving a Buy rating and $130 price target from BofA for potentially benefiting from the agentic AI.
Quanta Services suffered a sharp drop, likely driven by a combination of factors including significant insider selling and broader market sentiment, despite recent positive financial performance.
Germany stocks were higher, as gains in the financial and consumption stocks. Investor sentiment in Germany improved unexpectedly in May, according to the ZEW Institute.
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