Since the publication of South Africa’s government budget statement the Rand has significantly depreciated across the board. Recently reinstated South African Finance Minister Pravin Gordhan faced a difficult balancing act. Gordhan outlined several spending cuts but still downwardly revised economic growth prospects. This has caused the South African Rand to shed 3% against the US Dollar since the budget was released.
Meanwhile, the Euro has seen a mixed-faring this week after initial gains, in response to US Dollar weakness, were lost as it became clear that demand for financer assets was cooling. Also weighing heavily on demand for the single currency has been increased bets regarding aggressive stimulus measures from the European Central Bank (ECB). President Mario Draghi’s dovish speeches have confirmed speculation for many traders that the ECB will look to ease policy in March.
On Thursday the South African Rand continued to struggle versus its major peers despite registering comparatively positive domestic data results. January’s Producer Price Index bettered expectations on both a monthly and annual basis. Also, fourth-quarter South African Unemployment unexpectedly dropped. However, the disappointment of the budget statement continues to drag on demand for the Rand. Governance continues to present the highest risk to the Rand outlook as traders question the competence of President Jacob Zuma after he changed the finance minister twice in less-than-a-week.
The Euro also struggled versus a number of its major peers on Thursday. This was mostly the result of disappointing domestic inflation data. January’s Eurozone Consumer Price Index was expected to come at 0.4% but the actual result only hit 0.3%. The previous figure was also downwardly revised. This has put further downward pressure on the Euro amid mounting speculation that the European Central Bank (ECB) will employ aggressive stimulus measures in the March policy meeting. President Mario Draghi has certainly been hinting that the central bank will do everything within its power to stimulate economic and inflationary growth. The question is, what more can they do and will it work?
Looking ahead, there will be a number of data publications over the coming week with the potential to cause changes for the EUR/ZAR conversion rate. In terms of British data, Friday’s Consumer Confidence data is likely to be the most impactful. The Friday after that will see British services output data published. This is significant because the services sector accounts for the single largest portion of British Gross Domestic Product. In terms of South African data, Tuesday’s fourth-quarter Gross Domestic Product data will be most likely to provoke Rand volatility.
The Euro to South African Rand (EUR/ZAR) exchange rate was trending within the range of 17.0600 to 17.3580 during Thursday’s European session.