Despite mixed South African ecostats and strong data from the Eurozone, the Euro to South African Rand exchange rate dropped on Thursday due to a sudden increase in demand for risk-correlated currencies. EUR/ZAR had fluctuated around the week’s opening levels but on Thursday the pair fell to a weekly low of 14.30.
Euro (EUR) Falls Despite Strong Domestic Data
Demand for the Euro has been mixed in the last week despite a continued slew of optimistic Eurozone ecostats. This has included a strong trade surplus from Germany and on Thursday morning a better-than-expected GDP result from Germany.
Germany’s full 2016 Gross Domestic Product (GDP) result was expected to increase slightly from 1.7% to 1.8%, but the final figure instead came in at an impressive 1.9%.
Despite the strong growth score, investor attention was elsewhere on Thursday. Wednesday night’s press conference from US President-elect Donald Trump was highly disappointing to traders hoping for more news on fiscal policy.
As a result, traders spent most of Wednesday evening and Thursday morning selling the US Dollar in favour of riskier currencies.
South African Rand (ZAR) Benefits from Trump-Influenced Risk Rally
The Rand has been limp for most of the week due to various factors including a lack of supportive data as well as increasing prices of oil.
As an emerging market, South Africa typically benefits from lower oil prices and as a result the strength of oil since the year began has kept the Rand from its best levels.
However, demand for ZAR improved on Thursday despite an underwhelming South African manufacturing PMI from Barclays. The figure was expected to improve from 48.3 to 49.3, but instead slipped to 46.7 showing a worse-than-predicted contraction.
The reason for the Rand’s increase in demand was a sudden risk rally, largely influenced by market disappointment in US President-elect Donald Trump’s Wednesday press conference.
The South African Rand was able to benefit from this rally despite prices of oil remaining high.
EUR/ZAR Forecast: Exchange Rate Could Remain Volatile
While the Rand pushed the Euro lower on Thursday, the Euro to Rand exchange rate had already seen many drops and spikes in the past week due to market volatility. This means the pair’s current losses may not remain and the pair could advance again once markets calm.
EUR/ZAR may end this week lower if the risk-rally continues and markets remain jittery on the US Dollar.
On the other hand, hawkish comments from the Federal Reserve or from US President-elect Trump himself would certainly weaken the Rand, particularly if Trump continues to hint that US trade ties will be weakened.
The Euro to Rand exchange rate is more likely to see data-influenced movement next week, as the week’s Eurozone data includes ZEW’s January economic sentiment surveys and December’s final Eurozone inflation figures. South African inflation results will also be published.
Generally, the Euro to Rand exchange rate trended bearishly on Thursday, but due to the risky nature of a risk rally could still easily end the week above or below the week’s opening levels.