According to South African Finance Minister Pravin Gordhan, the South African government has done enough to avoid a credit rating downgrade by S&P Global Ratings and Fitch Ratings Ltd. This news caused the Rand to advance versus most of its peers, but the single currency continues to outpace rivals.
Euro (EUR) Faces Upside Risks ahead of ECB Rate Decision
Despite recent data showing that Eurozone manufacturing is near-stagnation, fuelling speculation of slowing economic growth, the Euro advanced versus a number of its major peers. The appreciation is mostly the result of growing uncertainty as to when the Federal Reserve will consider hiking the overnight cash rate, especially against the backdrop of political uncertainty that has seen controversial Presidential candidate Donald Trump’s popularity grow exponentially.
Concerns regarding Fed rate hike delays aside, speculation that the European Central Bank (ECB) will look to delay easing policy has also provided the Euro with upward momentum. This is because the current uncertainty regarding the timing of a Fed rate hike, coupled with the uncertainty surrounding the EU referendum, does not make a comfortable platform for altering policy.
Additional delays to ECB easing could come from the Eurozone’s most influential economy. As Germans become increasingly disillusioned with the ECB’s policy outlook and it becomes more difficult for the ECB to find appropriate bonds to purchase, Germany could make it very difficult for ECB policymakers to affect changes.
US ecostats will become increasingly impactful for the Euro as Fed policy outlook becomes ever more data dependent. If Tuesday’s US labour market data fails to produce positive results the Euro could climb significantly as the US Dollar plummets. Prospects of longer delays to widening policy divergence will also propel negative correlation.
South African Rand (ZAR) Exchange Rates Advance on Fed Uncertainty
As traders became less sure-footed with regards to predictions of a near-term Federal Reserve cash rate increase, the South African Rand advanced. However, ongoing concerns surrounding South African President Jacob Zuma’s ability to rule the nation successfully and ethically continues to limit the appeal of ZAR.
The recently elected Finance Minister Pravin Gordhan did deliver some good news, however, stating that the government has done enough to avoid the nation’s credit rating being cut to junk status. Those in charge of deciding a country’s credit status have not yet confirmed these words, however, with some still sceptical after a recent statement from Jan Friederich of Fitch Ratings Ltd.
‘It was calming for the markets that Gordhan was appointed, he is a safe pair of hands, but with the developments since then, we are not entirely sure that has completely reinstated the ‘status quo ante’ in terms of allaying the fears that there was a shift in sentiment on the side of the presidency towards fiscal consolidation.’
EUR/ZAR Exchange Rate Forecast to Hold Gains
Given that the ECB is very unlikely to ease policy at this time, and with the Fed unlikely to tighten policy this month, the Euro is likely to firm. The lack of South African data and potential for significant shifts in risk appetite is likely to see the EUR/ZAR exchange rate hold or extend gains.
Over the past week, the Euro to South African Rand (EUR/ZAR) exchange rate was trending within the range of 17.3283 to 17.6715.