Rand Supported as Moody’s Postpones Credit Ratings Assessment
South Africans breathed a sigh of relief on Friday when credit ratings agency Moody’s decided to postpone the publication of its review of their country’s debt.
Although there was little serious expectation of a ratings downgrade among investors, the shadow of it being a possibility had been falling over ZAR rates for some time.
Nevertheless, the South African Rand was struggling to hold onto its gains this morning as investors indulged in a bout of profit taking following a sharp downward correction in the EUR/ZAR rate.
South African Rand to Euro (ZAR/EUR) Exchange Rate Unsteady after Finance Minister ‘Quits’
The now former Finance Minister, Nhlanhla Nene, asked President Cyril Ramaphosa to be relieved of his post last week after he admitted to attending previously undisclosed meetings with a family accused of being embroiled in a corruption scandal with ex-President Jacob Zuma.
Speaking about the effective resignation, Jameel Ahmad, head of currency strategy at FXTM stated: ‘The initial selling reaction on the Rand on reports that its finance minister has asked to be sacked will encourage investor caution that South Africa could be in store for another round of political risk.’
The uncertainty caused by Nene’s departure proved to be short-lived, however, with markets welcoming the appointment of Tito Mboweni as the new Finance Minister.
Mboweni is the former governor of South Africa’s Reserve Bank and is considered to be as a ‘safe pair of hands’ by investors worried about the state of South Africa’s financial affairs.
Rand Rallies Sharply against Euro (ZAR/EUR) as ZEW Economic Sentiment Index Disappoints
The Rand (ZAR) gained around 0.6% against the Euro (EUR) today as a key economic sentiment survey result caused an upset across Germany and the wider Eurozone.
Two ZEW surveys of Eurozone and German economic sentiment printed much lower than expectations, indicating tougher trader conditions in the bloc.
The worse of the two related to current economic sentiment in Germany, and was expected to show a slight fall to -11.3, but instead registered a much greater decline to -24.7.
As these survey results sunk in, the South African Rand was able to take advantage as the Euro was put on the defensive.
South African Retail Sales and Mining Production Figures could Limit ZAR if they Disappoint
Although it has been a good week for the South African Rand, ZAR could experience renewed weakness when August’s South African retail sales and mining production figures are published.
Gold production and mining are both expected to show another month of contraction, denting hopes for a recovery in these sectors.
Furthermore, tomorrow’s retail sales figures are expected to show a month-on-month increase, but to slow on the year, which could hit the ZAR/EUR exchange rate.
With South Africa’s economic health still under scrutiny, unless retail sales surprises to the upside ZAR exchange rates look set to decline, despite the postponement of the credit rating from Moody’s.