South African Rand Loses More Ground against Euro (EUR/ZAR) despite Unexpected Eurozone Trade Data

Euro South African Rand (EUR/ZAR) Exchange Rate Recovers Ground in Spite of Narrowed Eurozone Trade Surplus

A sharper-than-expected narrowing of the Eurozone trade surplus in July highlighted the currency union’s continued vulnerability to international trade tensions.

However, this failed to prevent EUR/ZAR picking up modestly this morning as the Euro worked to recover from yesterday’s low of R17.08.

Although the trade surplus narrowed from €22.5 billion to €17.6 billion this was not enough to drive the Euro (EUR) lower against its rivals.

As the European Central Bank (ECB) confirmed that it will reduce its net asset purchases to €15 billion per month this has limited the incentive for investors to sell out of the single currency.

Easing Emerging Market Currency Concerns Weigh on EUR/ZAR Exchange Rate

After the Central Bank of the Republic of Turkey (CBRT) opted to drastically hike interest rates yesterday, the Euro to South African Rand (EUR/ZAR) exchange rate saw some sharp losses as the knock-on effects of the Turkish rate hike caused risk appetite to surge.

The CBRT’s show of independence helped to shore up the South African Rand (ZAR) against its rivals, reversing some of the recent weakness in emerging market currencies.

As the CBRT shrugged off political influence this eased wider market concerns over the potential for the ongoing emerging currency crisis to deepen.

Relief at the central bank’s decision helped to diminish the impact of disappointing South African data, allowing ZAR exchange rates to push higher on Thursday.

However, the sharp and unexpected contraction in mining production on both the month and the year does not bode well for the health of the South African economy going forward.

South African Rand (ZAR) Exchange Rates Vulnerable to Trade Tensions Ahead of SARB Meeting

Unless trade tensions between the US and China show signs of easing the Euro to South African Rand (EUR/ZAR) exchange rate is likely to recover much of its recent losses in the days ahead.

As long as the US Dollar (USD) remains on a bullish footing the appeal of the South African Rand looks set to remain limited, especially as anticipation mounts for the Federal Reserve’s September policy meeting.

Next Wednesday’s South African inflation data is also set to provoke fresh volatility for the EUR/ZAR exchange rate, with the annual inflation rate forecast to edge up from 5.1% to 5.2%.

While this would remain comfortably within the South African Reserve Bank’s (SARB) interest rate target range the data could still drive movement ahead of Thursday’s rate decision.

Any signs of dovishness from SARB policymakers could leave the South African Rand lacking in support, though.

Finalised Eurozone Inflation Data to See Limited Impact on Euro South African Rand (EUR/ZAR) Exchange Rate

As Monday’s finalised Eurozone inflation data for August is not expected to see any change from the provisional reading this may limit the scope for Euro to South African Rand (EUR/ZAR) exchange rate gains.

Even though the ECB hardened its commitment to wind down its quantitative easing programme before the end of the year confirmation that domestic inflation is easing is unlikely to encourage investors.

With inflationary pressure within the currency union still failing to pick up convincingly the prospect of any ECB interest rate hike remains distant.

If the figures are revised higher, however, this may give the Euro to South African Rand (EUR/ZAR) exchange rate a boost to start the week.

Hannah Wilson

Contact Hannah Wilson