The Eurozone’s current domestic worries have allowed the South African Rand (ZAR) to make easy gains as positive commodity news and Chinese trade data increased investor appetite for emerging market assets.
Negative Eurozone Data, ECB Woes Weigh on Euro (EUR)
The Euro to South African Rand exchange rate plummeted this week after a lack of positive data allowed the Euro to fall on investor uncertainty.
Falling considerably during Wednesday’s session alone, the pair’s downtrend has landed it at its lowest point since December 2015, in the region of 16.4600.
Eurozone data released this morning puts industrial production at only 0.8% year-on-year, indicating a considerable slowing from the previous figure of 2.9% and disappointing estimates of 1.3%.
The Euro had previously been weakened by the latest European Central Bank (ECB) minutes release. Published late last week, the document illustrated that the central bank’s policymakers are at odds over which easing measures to put into practise.
European Central Bank (ECB) Pressure Rises
The ECB has faced additional pressure since the minutes publication last week, with German Finance Minister Wolfgang Schaeuble being the most recent to offer criticism towards the bank.
He argued over the weekend that the ECB’s easing policies were dangerous towards Germany, and had increased the appeal of a rising right-wing political party in the country.
Tuesday’s session threw more onto the central bank’s plate after the International Monetary Fund (IMF) predicted lower interest rates for the Eurozone in 2016 and 2017.
The group also stated that the possibility of the UK leaving the European Union would harm the entirety of Europe’s economy, rather than just Britain’s.
Rand (ZAR) Strengthens on Risk Appetite
With the Euro increasingly unappealing, investors are looking towards emerging markets, which are being supported by rising risk-on movements.
This has helped the South African Rand recover after the currency floundered on worries that the nation’s credit rating could be cut due to political difficulties.
Oil prices are up this week ahead of the upcoming OPEC meeting. Other commodities are also up amid the oil excitement.
New Chinese data released today also boosted ZAR. As China is one of South Africa’s main trading partners, the news that export and import figures printed positively was well received.
EUR/ZAR Exchange Rate Forecast
Eurozone Consumer Price Index (CPI) reports are due for release during Thursday’s session and negative results there are likely to allow the Rand’s rally to continue.
The South African Rand is also likely to strengthen in the coming week if the Organization of the Petroleum Exporting Countries (OPEC) meeting on the 17
th
of April successfully ends in an oil production ‘freeze’ agreement.
A ‘freeze’ may improve commodity sentiment and skyrocket the appeal of emerging-market currencies like the Rand.
At the time of writing, EUR/ZAR has dropped over -1.6%.