The Euro to South African Rand exchange rate has fluctuated widely since Monday, having attempted to gain but ultimately falling back towards the week’s opening levels of 16.2064 due to strengthened risk sentiment and poor Eurozone news. EUR/ZAR was trending in the region of 16.2550 at the time of writing.
Euro (EUR) Sentiment Slumps as Data Undermines Expectations
After a run of poor Eurozone news over the last few days, the Euro finally appears to have been affected on Thursday as it dropped against a majority of its major rivals.
News that Italian banks had been dealing with a dangerously high level of bad loans dominated European headlines earlier in the week, and Eurozone PMI indicated that Q2 growth could drop as low as 0.3%.
As Q2 barely scratches the surface of the Brexit, with the vote being made near the end of June, many investors anticipate Q3’s growth could be even worse.
This was topped off by a shockingly poor German industrial production report on Thursday morning. May’s figures scored contractions in both monthly (-1.3%) and yearly (-0.4%) prints, undermining expectations of 0.0% and 1.5% respectively.
Eurozone Markets Anxious Ahead of ECB Minutes
Investors also adjusted their positions on the Euro as they anticipated the European Central Bank’s (ECB) latest meeting minutes.
While the meeting took place at the beginning of June, investors and analysts are anxious to see if any potential Brexit-related measures were discussed.
Lastly, news from the US has also weighed on the Euro by increasing risk appetite. The Federal Open Market Committee’s (FOMC) own meeting minutes indicated that previously speculated interest rate hikes were now unlikely.
The report revealed that the Fed would look at the result of the EU Referendum (now known to be Brexit) and US labour data before opting to hike rates.
South African Rand (ZAR) Boosted as Risk Sentiment Improves
Due to the FOMC’s latest minutes report and optimistic news from both Australia and New Zealand this week, risk-sentiment has been given a reprieve, benefitting the risk-sensitive Rand.
However, the South African Rand has experienced considerable pressure since the UK’s Brexit result was announced due to concerns that a UK exit from the EU would lead to the UK cutting ties with South Africa and reducing foreign aid.
EUR/ZAR Forecast to Remain Pressured
With the Euro being hit with a week’s worth of poor sentiment during Thursday, the Rand has experienced a much-needed session of relief.
However, EUR/ZAR is likely to continue fluctuating heavily as both currencies react to Brexit-related panic movements and developments.
The Euro could fall further on Thursday afternoon if the ECB’s minutes hint strongly towards further easing and stimulus in 2016 in response to a Brexit.
However, Brexit-related drops in risk sentiment are also likely to weigh heavily on the Rand going forward. Risk appetite has already suffered considerably since the EU Referendum, with risk rallies now a lot shorter and more muted.