Update: Foreign Exchange Investors Remain Upbeat over Prospects of Economic Reform
The currency pairing (ZAR/EUR) has been trading in a narrow band, with 1 Euro buying ZAR14.53 by Friday morning.
Investors remain positive on hopes that incoming president Cyril Ramaphosa will implement economic reforms within the South African economy.
Euro South African Rand (EUR/ZAR) Exchange Rate Slumps after Zuma Finally Steps Down
News that South Africa’s president Jacob Zuma had finally resigned, in response to pressure from within the African National Congress (ANC), prompted the Euro to South African Rand (EUR/ZAR) exchange rate to slump sharply.
Markets were encouraged by the departure of the controversial Zuma, with investors hopeful that this represents a significant turning point for the South African economy.
With expectations for South Africa’s next president Cyril Ramaphosa already high, the mood towards the South African Rand (ZAR) improved markedly in the wake of Wednesday’s announcement.
It remains to be seen, however, whether Ramaphosa can ultimately deliver on the sweeping changes that investors hope for, and ZAR exchange rates soon saw some moderation of their bullishness.
Narrowed Trade Surplus Weighs on Euro (EUR) Exchange Rates
An unexpected narrowing of the Eurozone trade surplus in December exacerbated the softness of the EUR/ZAR exchange rate on Thursday morning.
While the surplus remains relatively healthy, standing at €25.4 billion, this weaker-than-expected figure dented the appeal of the Euro (EUR).
Underwhelming Spanish inflation data added to the more bearish mood of EUR exchange rates, highlighting the fact that price pressures across the currency union are not mounting as hoped.
This left the Euro struggling to find any particular traction against its rivals, even though the mood towards the US Dollar (USD) remained generally muted and market risk appetite improved.
2018 South Africa Budget Forecast to Provoke Further EUR/ZAR Exchange Rate Volatility
Political developments in South Africa are likely to remain a key influence on the EUR/ZAR exchange rate in the coming days, although any meaningful change is unlikely to be fast.
The delivery and details of the 2018 budget speech will be scrutinised, with a disappointing speech having the potential to significantly dent market optimism.
Additional volatility also looks to be in store for the Rand with the release of January’s South African inflation data on Wednesday.
As forecasts point towards a slight increase in inflationary pressure this could put some downside pressure on ZAR exchange rates.
Even so, barring a significant surprise from the inflation data the impact on the Rand is unlikely to be long-lived.
If global markets return to a more risk-averse mentality, though, due to bets on the likelihood of the Federal Reserve raising interest rate imminently, this could reverse the recent gains of ZAR exchange rates.
EUR/ZAR Exchange Rate Could Rally on Stronger German Wholesale Prices
Ahead of the weekend, the EUR/ZAR exchange rate could find some form of support on the back of January’s German wholesale price index figures.
A stronger showing here could encourage bets that inflationary pressure within the Eurozone’s powerhouse economy remains relatively robust, to the benefit of the Euro.
Although the chances of the European Central Bank (ECB) returning to a more hawkish policy outlook in the near future are distinctly limited, an uptick in wholesale prices could still be enough to boost EUR exchange rates.
However, if prices show a fresh contraction on the month this could weigh heavily on the Euro, undermining the odds of ECB policymakers taking a more aggressive stance on monetary tightening in the months to come.