South African Rand Forecast: SA Inflation Falls, Eurozone PMI Impresses, EUR ZAR Exchange Rate Climbs

The Euro South African Rand (EUR ZAR) exchange rate climbed today as markets reacted to a run of mostly upbeat Eurozone data releases and decelerating South African inflation.

##South African Inflation Decelerates, South African Rand (ZAR) Exchange Rate Flounders

After rising earlier in the week on Mugabe’s resignation, South African Rand (ZAR) exchange rates dipped as annual consumer price growth in South Africa decelerated to 4.8% in October, sliding from the previous period’s 5.1% and missing the 5% forecast.

The core inflation figure also contracted, this time from 4.6% to 4.5%, marking the lowest it’s been since July 2012, whilst the month-on-month figure dropped from 0.5%, to 0.3%.

Prices predominantly slowed for transport, food and miscellaneous goods and services, with economists blaming the overall deceleration on a weak Rand.

Why is the South African Rand (ZAR) the Worst Performing Currency of 2017?

The poor performance of South African Rand (ZAR) exchange rates can be attributed to political turmoil within the region, which has stalled economic reform for South Africa for some time.

President Jacob Zuma notably removed Pravin Gordhan as finance minister in March and the ruling African National Congress is due to elect a new leader in December this year – an event that is causing conflict between growing factions.

This has left the ZAR exchange rate currently vying with the New Zealand Dollar to be the worst-performing major currency in the 2nd half of 2017, with political turbulence, high public debt and low business confidence leaving the Rand floundering.

German GDP Hits its Mark, Euro (EUR) Exchange Rates Climb

Euro (EUR) exchange rates meanwhile, performed well as data from the currency bloc today proved mostly positive, with annual German GDP accelerating to 2.8% in the third quarter, up from the revised 2.3% previously and in line with the forecast.

Similarly, the quarter-on-quarter figure hit 0.8%, beating the previous quarter’s 0.6%.

This growth was largely driven by a jump in foreign demand and investment, particularly in regards to spending on machinery and equipment.

In other news, the Eurozone’s Markit services, manufacturing and composite PMI readings for November all proved positive, rising from 55.2 to 56.2, 58.2 to 60, and 55.9 to 57.5 respectively, illustrating that the Eurozone economy continues to build momentum into the fourth quarter.

Combined with multi-year highs for various indicators of output, demand, employment and inflation in November, the market outlook for the single currency remains strong.

EUR ZAR Exchange Rate Forecast: South African Interest Rate Decision Ahead

South Africa’s central bank is expected to keep interest rates unchanged today, with the bank seemingly hamstrung by ongoing political uncertainty surrounding the December election.

Andrew Golding Chief Executive of the Pam Golding Property group shared this sentiment, stating: ‘As things stand, political uncertainty is likely to delay further rate cuts for the foreseeable future and the economic situation is in somewhat of a ‘holding pattern’ until the ANC elective conference’.

The outlook for the ZAR has also grown darker on fears of further downgrades to its credit rating, with S&P Global and Moody’s soon due to issue their latest reviews.

On the Euro front the outlook remains positive, with today’s positive data liable to satisfy markets in the near term.

Whilst the European Central Bank’s (ECB) account of the monetary policy meeting (minutes) will be released today it is unlikely that it will cause much volatility for EUR ZAR, especially with the South African Rand performing poorly.

Adam Solomon

Adam joined the team at TorFX soon after graduating from University in 2005 with a degree in Journalism. Since then Adam has advanced to become both Head of Trading and Head of Treasury. His keen interest in the currency market and knowledge of what drives exchange rates makes him perfectly positioned to produce regular market updates focused on the movements of the major currencies.

Contact Adam Solomon