The Euro to South African Rand exchange rate has tumbled over the past few days, despite further increasing joblessness in South Africa as investors focus on Eurozone monetary policy and the low odds it will be tightened any time soon.
Mario Draghi Comments Weaken EUR ZAR despite Surging South African Unemployment
The Euro has weakened sharply against the Rand since the beginning of the week, falling from opening levels of 15.30 to 15.01, despite the news on Tuesday that South Africa’s already vast unemployment rate had swollen even further. A rise in the number of unemployed persons from 5.63 million in Q2 to 5.87 million in Q3 took the unemployment rate up from 26.6% to 27.1% – a 13-year high.
Keeping downside pressure on EUR ZAR are the latest comments from European Central Bank (ECB) Chief Mario Draghi, who has noted that loose Eurozone monetary policy must remain that way. Draghi commented that;
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The return of inflation towards our objective still relies on the continuation of the current, unprecedented level of monetary support, in spite of the gradual closing of the output gap
.’
He also repeated his well-worn call for governments within the Eurozone to increase fiscal spending in order to assist monetary policy, stating;
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Fiscal policies should also support the economic recovery, while remaining in compliance with the fiscal rules of the European Union. For instance, a more growth-friendly composition of fiscal policies could boost growth
.’
This further heightened fears that the ECB is running out of options for stimulating the Eurozone economy.
EUR ZAR Edges Higher as Investors Await South Africa Ratings Revisions
The day’s Eurozone PMIs have been mixed overall, with Germany’s manufacturing and composite index weakening above expectations but the Eurozone indices beating forecasts. Overall, Eurozone growth accelerated to its fastest pace seen in 2016, indicating that Q4 GDP figures could show an increased rate of economic expansion.
However, with European Central Bank (ECB) President Mario Draghi having commented recently that Eurozone growth was reliant upon loose monetary policy, there was little hope the uptick in growth would prompt the Governing Council to rethink their easing bias.
However, the Euro South African Rand exchange rate was able to make minor gains as investors nervously awaited the latest judgements on South Africa’s credit-worthiness from ratings agencies. With two agencies, Fitch and Standard & Poor’s, both currently rating government debt just one notch above ‘junk’ status, a negative outlook or downgrade from either of these is likely to spark a rout on the Rand, weakening the appeal of the emerging-market currency.
EUR ZAR Exchange Rate Forecast; South African Rand to Remain Weak Until Credit Ratings Updates
There is a slew of Eurozone data due tomorrow, including the German IFO business climate, current assessment and expectation surveys and the GfK consumer confidence results.
South African data could help resist any Euro appreciation tomorrow, although it is likely the country’s credit rating evaluations will remain the dominant risk to ZAR in the coming days. PPI indices for October are expected to re-enter positive territory on the month and slow on the year, while the South African Reserve Bank (SARB) is predicted to hold interest rates at 7.0%.
Speculation over ECB monetary policy will likely continue driving EUR ZAR exchange rates; Mario Draghi is scheduled to speak again on Monday, although as he has already commented that monetary policy will remain loose, his latest appearance may hold few negative surprises for investors.