The Euro to South African Rand (EUR/ZAR) exchange rate firmed early on Wednesday as a strengthening US Dollar put pressure on emerging-market currencies such as the Rand. The gains are forecast to be short-lived however, as market attention focuses on Greece and concerns increase that the nation will default on June 5.
The Greek government must reach an agreement with its international creditors to obtain vital bailout funds by June 5 or else it will default on its debt repayments to the International Monetary Fund (IMF). Athens must repay €305 million. The nation’s lenders in Europe want Greece to implement economic reforms before they will grant the final €7.2 billion of the country’s €240 billion bailout fund.
If Greece’s creditors acquiesce to Athen’s demands to respect redlines it has set regarding pensions and labour market issues, other indebted EU members may revolt.
‘In Europe, indications are that, while there has been progress in negotiations, Greece will miss its June debt payment to the IMF unless a deal is reached by the end of May. Concessions for Greece are highly unlikely- the EU will almost certainly face a second revolt in the form of Portugal’s ascendant socialists if any are afforded to Athens,’ warned an investor.
The single currency was also weakened after senior European Central Bank policymaker Benoit Coeure said that the bank plans to speed up the pace of its bond-buying programme before the summer in order to avoid lower market liquidity over July and August. Following his comments, the Euro fell by more than 1.6% against the US Dollar.
As the session progresses and worries over Greece intensify, the South African Rand is likely to shrug off earlier losses and push higher against the Euro. The currency received support after the South African government and 1.3 million of its employees reached a wage deal. The agreement means the nation will avoid the damaging impacts of a strike in the public service sector and will see the public sector workers receive pay rises of 7% backdated from April.
Also offering some support to the Rand were comments made by credit ratings agency Moody’s. The agency said that there will be no change to South Africa’s credit rating for the near future as the nation has a stable outlook and is stronger than its regional peers.
The South African Rand could make gains if the latest domestic inflation data comes in positively. Also of interest will be Eurozone construction output data.