Euro to South African Rand (EUR/ZAR) Exchange Rate Surges as Trade Jitters Hit Emerging Market Currencies
The Euro to South African Rand (EUR/ZAR) exchange rate remains range-bound – as despite the Rand’s (ZAR) recovery attempt last week, this week has seen the exchange rate rise again due to changes in the market’s political outlook.
Last week saw EUR/ZAR slump from the interbank level of 15.04 to 14.55. This week though, after rebounding from a multi-month-low of 14.45, the pair began to recover. At the time of writing, EUR/ZAR was trending near a weekly high of 14.88.
After a choppy first half of the week due to Italian political uncertainty, things improved for the Euro (EUR) in the second thanks to easing political fears and solid economic data.
This helped the Euro to South African Rand exchange rate to easily advance, as the Rand became unappealing due to the latest protectionist actions from the US.
As the US confirmed it would put hefty trade tariffs on metals imports from some of its biggest allies, investors were less willing to take risks on emerging market currencies like the South African Rand.
Euro (EUR) Exchange Rates Recover from Worst Levels as Political Uncertainty Lightens
Despite the Eurozone’s latest manufacturing PMI results coming in short of projections, Euro (EUR) investors have been more focused on Eurozone political news this week.
The bloc’s latest crop of political uncertainties were surprisingly short-lived, with a perceived political crisis in Italy seemingly ending with a populist coalition government being formed after all – rather than leading to an unstable temporary government or fresh elections.
While the government set to be sworn in is one headed by a coalition of two populist parties, Italy’s Eurozone membership was not an issue during the election and it is perceived as unlikely for the new government to make it so. This has put investors at ease.
Friday also saw Spain’s ex-Prime Minister, Mariano Rajoy, kicked out of office in a no-confidence vote. Spain’s next prime minister is expected to be Pedro Sánchez. However, this has so far had little impact on the Euro outlook.
Domestic Euro support was bolstered this week by news that Eurozone inflation was stronger than expected in May. All these factors helped the Euro to capitalise on the Rand’s (ZAR) late-week losses.
South African Rand (ZAR) Exchange Rates Slip as US Imposes Trade Tariffs on Exporters
The South African Rand (ZAR) plunged on Thursday, amid reports that the US government intended to go ahead with plans to place trade tariffs on a few of its biggest allies.
The US finally imposed tariffs on US imports of steel and aluminium from the European Union, Canada and Mexico. The other nations criticised the US government’s actions and as a result, trade war jitters worsened again.
This weighed heavily on market demand for risky, emerging market currencies like the South African Rand, as South Africa’s economy relies heavily on global trade. Still, the latest jump in trade war fears was relatively limited.
The Rand steadied again on Friday, despite news that South African manufacturing had contracted in May, but the Euro’s (EUR) advances were strong so EUR/ZAR is still on track to sustain gains this week.
Euro to South African Rand (EUR/ZAR) Forecast: Growth Results in Focus
While Italian political news could remain in focus if there are more surprising developments, investors may move away from Eurozone politics next week and the Euro to South African Rand (EUR/ZAR) exchange rate may be more influenced by trade developments and data.
US trade jitters took focus again this week as the US imposed trade tariffs on its allies.
Developments there are likely to continue to impact market appetite for risky trade-correlated currencies, and emerging market currencies like the South African Rand (ZAR).
If there are no surprising political or trade developments to impact EUR/ZAR trade though, major Gross Domestic Product (GDP) results from Q1 could influence both currencies.
South Africa’s Q1 growth results will be published on Tuesday, followed by the Eurozone’s third growth projections for Q1 on Thursday.
This will be the most accurate Eurozone growth projection until the final results come in, so they are likely to be influential. If they come in strongly, the Euro to South African Rand (EUR/ZAR) exchange rate could be in for another week of gains.