Euro to South African Rand Forecast: EUR/ZAR Exchange Rate to Surge if Moody’s Downgrades SA Credit Rating

Euro to South African Rand Exchange Rate Slips as Investors Anticipate Moody’s Decision

Despite risk-aversion in markets and jitters ahead of an anticipated South Africa credit rating decision from Moody’s, the Euro to South African Rand (EUR/ZAR) exchange rate has slipped this week.

EUR/ZAR opened at the interbank level of 14.72 on Monday and briefly surged to a one-month-high of 14.88. Since then though the pair has been tumbling, and on Thursday touched a weekly interbank low of 14.50.

Credit ratings agency Moody’s is expected to announce the decision of its rating review of South Africa’s economy sometime today.

Markets have become more confident that thanks to new South African President Cyril Ramaphosa, the nation will hold onto its investment grade credit rating. As a result, the South African Rand (ZAR) has seen solid demand towards the end of the week.

Still, the decision will be highly influential for EUR/ZAR trade. If Moody’s does cut South Africa’s credit rating to ‘junk’ despite predictions, the Rand could plummet.

Euro (EUR) Exchange Rates Weakened as Eurozone Ecostats Fail to Impress

The Euro (EUR) has been unable to hold its ground against the South African Rand this week, despite speculation that the European Central Bank (ECB) is considering its Eurozone interest rate policies as opposed to bond-buying measures.

This has largely been due to this week’s underwhelming Eurozone data releases.

In particular, Thursday’s Eurozone PMI projections from Markit indicated that Eurozone economic activity was not as robust as expected in March.

German manufacturing was forecast to slip from 60.6 to 59.8, but instead fell to 58.4. In fact, all of Germany and France’s PMI projections fell short of forecasts.

The Eurozone’s general PMI projections also fell short. Manufacturing slipped from 58.6 to 56.6, services from 56.2 to 55.0, and the overall composite figure from 57.1 to 55.3, missing the expected 56.7.

South African Rand (ZAR) Calm Ahead of Moody’s Decision

A majority of analysts believe South Africa will escape a credit rating cut from Moody’s, following last year’s downgrades to ‘junk’ rating from S&P and Fitch.

Previously, it was expected that Moody’s would cut the nation’s credit rating too. However, following the prompt placement of Cyril Ramaphosa as the new SA President, the nation’s political and economic outlook is perceived to be stronger.

According to Mehul Daya, technical strategy analyst from Nedbank:

‘Moody’s will give South Africa the benefit of the doubt even though it is difficult to quantify politics in their model,’

Gradually higher optimism about South Africa’s economic outlook is keeping ZAR trade appealing this week.

Euro to South African Rand (EUR/ZAR) Forecast: Eurozone Inflation and SARB Decision Ahead

Following the impact the Moody’s decision has on the South African Rand, next week’s session is unlikely to be as influential but there are still some key datasets ahead.

Eurozone inflation projections for March will begin to come in next week and these could make the Euro more appealing if they impress, as this would boost bets of European Central Bank (ECB) adopting a hawkish outlook.

Spanish Consumer Price Index (CPI) projections will come in on Tuesday, followed by German projections on Thursday, and lastly French and Irish projections on Friday.

Eurozone confidence data due earlier in the week could also have an influence.

As for the South African Rand, the currency is likely to continue to react to the outcome of Moody’s decision but will also be driven by risk-sentiment, particularly the US President’s stance on global trade and the possibility of a trade war.

South African Rand investors anticipate Wednesday’s session too, when the South African Reserve Bank (SARB) will hold its March policy decision meeting. Markets are speculating that the bank will cut interest rates during the decision.

Josh Ferry Woodard

After leaving university in 2011 Josh briefly worked as a currency analyst in the South West of Cornwall. Josh continued monitoring the currency markets and publishing exchange rate analysis after moving to London in 2012, with a particular focus on the impact of economic and political stimuli on forex. Josh was a regular contributor to The Telegraph’s weekly currency feature for several years.

Contact Josh Ferry Woodard