Euro to South African Rand (EUR/ZAR) Exchange Rate Rebounds Slightly from Three-Week-Lows as Risk-Rally Pauses

Euro to South African Rand Exchange Rate Edges Higher Despite Underwhelming Eurozone Manufacturing Data

After falling for most of the week, the Euro to South African Rand (EUR/ZAR) exchange rate rebounded slightly before markets closed on Friday. This week’s recovery rally in emerging market currencies has left the South African Rand (ZAR) much stronger.

EUR/ZAR opened the week at the interbank level of 17.41 and spent most of the week going lower. On Friday, EUR/ZAR briefly touched on a low of 16.73 – the pair’s worst level since August.

While EUR/ZAR is currently trending near the level of 16.92 and has recovered slightly, the pair is still on track to lose around half a Rand this week overall.

As US trade developments have not been as severe as analysts expected this week, high yielding emerging market currencies like the South African Rand have been rallying significantly as investors buy them from their lowest levels.

Weak Eurozone data kept EUR/ZAR pressured towards the end of the week and limited the Euro’s potential for recovery.

Euro (EUR) Exchange Rate Recovery Limited as Eurozone Manufacturing Disappoints

While the Euro (EUR) recovered slightly from its worst levels on Friday, this was more due to investors pausing the South African Rand (ZAR) recovery rally than any fresh strength in the Euro.

The Euro’s recovery was actually not as strong as it could have been, as the shared currency’s appeal was limited by the day’s disappointing Eurozone manufacturing PMI projections for September.

Manufacturing fell short of analyst expectations in Germany, France, and the Eurozone’s overall PMI projection.

Markit, who compiled the report, noted that stagnant exports due to US trade concerns and Brexit fears had slowed the Eurozone’s economy to one of its worst months of the last two years.

However, the Eurozone’s services sector was stronger than expected and helped to keep overall economic growth from missing the mark too much. According to Chris Williamson, Markit’s Chief Economist:

‘Thankfully, the slowdown was limited to manufacturing. A buoyant service sector, boosted in part by domestic demand being supported by strong job gains, means the survey data are running at a level indicative of the economy growing by a solid 0.5% in the third quarter.’

South African Rand (ZAR) Exchange Rate Rally Pauses Ahead of Ramaphosa Speech

Investors have been pouring funds into the South African Rand (ZAR) for most of the week.

As US-China trade tensions didn’t escalate as much as economists feared, and risk-correlated currencies have been perceived as undervalued, investors have been buying them back from their lowest levels.

The South African Reserve Bank (SARB) took a fairly cautious outlook in its policy decision this week, saying that the South African Rand’s weakness could lead to higher domestic inflation.

This helped ZAR to continue its rally right up through the end of the week. However, the rally paused on Friday as investors digested a speech from President Cyril Ramaphosa.

Ramaphosa discussed a fiscal stimulus plan in his speech with the intent of boosting growth in South Africa’s economy, which has recent entered a recession.

Euro to South African Rand (EUR/ZAR) Outlook Could Rise if Risk Rally Fades

If US-China trade tensions lessen by more than markets expect or if the nations show signs of beginning a new round of trade talks, investors are more likely to keep buying ZAR.

This could mean the South African Rand recovery rally could continue, especially if upcoming South African data is supportive.

Some South African consumer confidence data for Q3 will be published on Tuesday, and it could prove influential. Later in the week, South African PPI and private sector credit data will be published.

Next week’s Eurozone data could prove influential too, with business and consumer confidence survey stats due throughout.

Towards the end of the week, German and Eurozone Consumer Price Index (CPI) inflation projections for September will be published which could be especially influential for the Euro to South African Rand (EUR/ZAR) exchange rate.

Josh Jeffery

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