The Euro to South African Rand (EUR/ZAR) exchange rate weakened on Wednesday due to increased demand for riskier assets.
The increase in sentiment towards emerging market currencies such as the South African Rand came as the US Dollar (USD) was weakened by investors focusing on the upcoming Federal Reserve policy minutes release. Last Friday’s worse-than-forecast US jobs data has increased speculation that policy makers will not vote in favour of raising interest rates in the summer. Instead, expectations are growing that a rate hike will now occur at the end of the year.
‘Rand gains have been helped by an ongoing risk-on tone in global markets following the payrolls figure. It seems that large inflows and a Rand positive bias might remain as long as expectations remain that the Fed will hike only late in the year,’ said an analyst.
The Euro, meanwhile, softened against several major peers after economic data out of the single currency bloc came in below expectations.
Factory orders in the currency bloc’s largest economy fell unexpectedly for a second consecutive month in February due to stagnation in domestic demand and as demand from overseas fell. The report suggests that activity in the German economy remained subdued during the early stages of the year.
According to the German Economy Ministry, factory orders fell by a seasonally adjusted figure of -0.9%. The decline adds to January’s steep revised drop of -2.6%. Economists had been expecting a rise of 1.5%.
Domestic orders stagnated from the previous month, whilst foreign demand fell by 1.6%. New orders from the Euro area dropped by 2.1%, but those from other countries declined 1.3%. Orders for intermediate goods fell 1.2% and those for capital goods decreased 1.1%. Demand for consumer goods however grew by 2.9%.
Following on from the German report was the publication of disappointing Eurozone retail sales. The report published by Eurostat showed that sales fell by -0.2% in February from the preceding month’s strong 1.1% increase. The figure was widely forecast by analysts.
The South African Rand could make further gains against the Euro if the US Fed Minutes come in more dovish than expected and if Thursday’s Mining Production comes in positively. Also of interest will be the latest South African Manufacturing data. German Industrial Production and current account data will also be in focus.
During Wednesday’s European session the Euro to South African Rand exchange rate was trading in the region of 12.7761.