The Euro South African Rand exchange rate has slumped today, despite firm inflation figures boosting market appetite for the common currency elsewhere. High profile business leaders have thrown their support behind South Africa’s Finance Minister Pravin Gordhan as he faces fraud charges in a suspected attempt by President Jacob Zuma to oust him from the government.
EUR Supported by Data, Rocked by Suggestions of ECB QE Tapering
Several positive datasets supported the Euro over the course of the past seven days. Last Monday saw the German trade balance unexpectedly edge higher by EUR 0.5 billion, while the current account weakened less-than-expected. Eurozone investor confidence bettered estimates as well, clocking in at 8.5 instead of 6. Tuesday’s ZEW surveys showed better sentiment within the Eurozone than had been anticipated, while Wednesday’s Eurozone industrial production further improved the overall picture of the currency bloc’s health.
Today’s data has added to the positive outlook, with finalised consumer price indices showing firming inflationary pressures. September’s consumer price index was revised from 0.1% to 0.4% on the month and from 0.2% to 0.4% on the year as predicted, while core price growth held steady at 0.8% year-on-year.
However, markets were unsettled by rumours regarding the European Central Bank (ECB), with investors unsure whether to believe and price in suggestions that the quantitative easing programme may be wound down. While ending the programme could suggest the European Central Bank believes quantitative easing has performed its role and is no longer needed, it could also indicate that the Governing Council believes the policy either ineffective or unsustainable.
ZAR Reacts Bearishly to Perceived Political Coup against Finance Minister Gordhan
The South African Rand crashed on Tuesday as it emerged that prosecutors intended to charge Pravin Gordhan, South Africa’s Finance Minister, with fraud relating to a retire package he approved for an ex-colleague.
Many commentators are claiming this is another attempt by President Jacob Zuma to remove a Finance Minister who is trying to curb his spending habits. Government spending has been a contentious issue between the President and Finance Ministers before; the respected Nhlanhla Nene was fired by Zuma earlier this year, much to the aghast of investors.
Zuma, who was recently ordered by court to repay some of the millions of public money he spent upgrading his private residence, is rumoured to have clashed with Gordhan over spending as well. Gordhan, who already served as Finance Minister before Nene until 2014, returned to the post after Zuma’s appointment of supposed unknown ‘yes man’ David van Rooyen caused so much uproar the President was forced to replace him after just three days in the position.
The initial news of the charges against Gordhan caused the ZAR/EUR exchange rate to tumble -2.3% in the space of an hour.
EUR/ZAR Slumps as Business Leaders Throw their Weigh behind Finance Minister Gordhan
The Euro is strong overall today, advancing on the day’s inflation figures and the potential for the ECB to begin hawkish talk of dismantling its monetary stimulus efforts during the meeting this week.
However, investors are more disposed towards the South African Rand today, buying the high-risk currency from its low levels. 15 heads of business, including the former chief executives of Massmart and Standard Bank have given their backing to Pravin Gordhan. In a statement the business leaders commented;
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We have no doubt about the need for his critical leadership at this time of vital economic importance. South Africa’s democratic transformation cannot afford to have a man of Gordhan’s abilities distracted or sidelined.
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Their support comes a day after Cyril Ramaphosa, South Africa’s Deputy President, publicly expressed concern over the prosecution of Gordhan and gave his backing to the Finance Minister.
EUR/ZAR Exchange Rate Forecast; ECB Meeting and Gordhan Prosecution to Overshadow Data?
The next event on the Eurozone data calendar will also be the most important; Thursday’s European Central Bank monetary policy meeting. Investors are not expecting changes to interest rates, but will be interested to see if there is any mention of adjustments to the parameters or scale of quantitative easing.
The next South African data will be released on Wednesday, when September’s inflation rate and August’s retail sales figures will be published.