Market Caution Prompts EUR/ZAR Exchange Rate Rally
At the time of writing the EUR/ZAR exchange rate was up 0.21%, with the pairing closing in on Tuesday’s opening levels.
South African Rand (ZAR) Cools as Caution Drives Investors
The South African Rand is trading lower against the Euro today, with a dearth of domestic economic or political developments causing the currency to relinquish its recent gains.
The Rand had raced higher on Tuesday, with analysts suggesting the sharp and sudden uptick in ZAR was caused by a sell off of USD, likely triggering stop-loss orders.
Oliver Alwar, senior trader at Standard Bank said:
‘Once the Rand went through the key support level at 12.23, it is likely that a lot of stop-losses were triggered.’
However the Rand’s gains proved to be short lived, with the currency giving up the majority of Tuesday’s gains overnight as currency markets sought a correction.
Investors are now returning to their cautious positions regarding the Rand as they remain concerned Cyril Ramaphosa may struggle to deliver on his promises to implement reform.
Euro (EUR) Struggles Following Constâncio Comments
Today’s Euro recovery has been slowed somewhat by comments from a prominent European Central Bank (ECB) policymaker’s warning over the recent jump in the currency.
In an interview with Italian newspaper La Repubblica, vice-president of the ECB Vítor Constâncio expressed concerns over the recent surge in the Euro, suggested there was little fundamental support for such a sharp rise:
‘I am concerned about sudden movements [in the Euro] which don’t reflect changes in fundamentals,’ he said.
After claiming the prize of best performing major currency last year the Euro has kicked off 2018 with a bang, strengthening against the majority of its peers on speculation the ECB may seek to step up the pace of its QE tapering in the coming months.
Officials’ attempts to dampen this speculation in the past couple of days have had only a limited impact on the Euro.
EUR/ZAR Forecast: SARB Expected to Leave Rates on Hold
Looking ahead, movement in the EUR/ZAR exchange on Thursday is likely to be driven by the South African Reserve Bank’s (SARB) first policy meeting of 2018.
The SARB is expected to leave interest rates on hold again this month as higher oil prices may boost inflation.
The South African Rand could, however, still weaken following the meeting if policymakers remain downbeat in their growth outlook for the coming year.
Meanwhile the Euro may struggle tomorrow if the ECB’s Benoît Cœuré appears dovish when he gives a speech, with any further hints that the bank is unlikely to mention tapering at next week’s policy meeting likely to hit the single currency.