A number of factors contributed to the Euro to South African Rand (EUR/ZAR) exchange rate moving between lows of 13.8663 and highs of 14.1004 over the course of this week.
While the Rand derived support from the news that two top ratings agencies left South Africa’s credit rating unrevised, the Euro was pressured lower against a number of its peers as the two sides of the Greek debt fracas came to blows once more.
Both Greece and its creditors appear unwilling to compromise on key issues and until one side bends, no deal can be reached. Various institutions are beginning to prepare for a Grexit and with Greece asserting that it will default on its next payment to the International Monetary Fund (IMF) if emergency aid isn’t released; the odds of a Greek exit from the Eurozone are rising every day.
Despite this, the Euro was able to gain on the South African Rand in the build up to the Federal Open Market Committee (FOMC) interest rate announcement. While the central bank asserted that any policy adjustments would be data dependant, it did imply that rate revisions would occur this year – an outcome which would have a detrimental impact on emerging-market currencies like the Rand.
South Africa’s inflation report, published prior to the FOMC decision, had comparatively little impact on the domestic currency despite showing an increase in consumer price gains from 4.5% to 4.6% – the highest level of the year of the year so far. Economist Bart Stemmet noted; ‘Inflation is moving to the upper end of the central bank’s target because gasoline prices are rising and food prices are picking up.’
Next week the main South African news to be aware of is the nation’s Current Account data for the first quarter and Producer Price Index for May. The nation’s current account deficit is expected to swell from -198 billion Rand to -223.8 billion Rand, a result which could weigh on the Rand.
Ecostats for the Eurozone will also be driving EUR/ZAR volatility, with the most influential being the region’s flash Consumer Confidence Index and Markit’s Manufacturing/Services/Composite PMI’s for June. The Manufacturing and Composite PMI’s are expected to show a modest dip, while Service sector growth is tipped to increase. Signs of growth in the currency bloc, in spite of the recent turmoil, would be Euro-supportive.