Slump in SA Consumer Sentiment Weighs Heavily on South African Rand (ZAR) Exchange Rates
A sharp deterioration in the third quarter South African consumer confidence index put the South African Rand (ZAR) under renewed pressure this morning.
As the headline index slumped from 22 to 7 this encouraged investors to pull out of the Rand, with signs pointing towards another weak quarter of domestic growth.
With consumers taking an increasingly cautious outlook this is likely to lead to reduced spending in the months ahead, reducing economic momentum.
Although investors continue to speculate over the prospect of the US and China making progress towards an agreement on trade at the G20 summit, this has not been enough to shore up the risk-sensitive Rand.
Euro (EUR) Support Limited Thanks to Easing German Consumer Confidence
December’s German consumer confidence index offered little in the way of support to the Euro (EUR), meanwhile, as sentiment showed a slight dip on the month.
While the index remained in positive territory at 10.4 the decline still points towards an increasing sense of unease within the Eurozone’s powerhouse economy.
This weaker showing limited the appeal of the single currency, with softening consumer confidence unlikely to lend any particular support to economic growth in the fourth quarter.
Worries over the Italian budget continued to weigh on EUR exchange rates, meanwhile, even as markets bet on hopes of an imminent easing in global trade tensions.
South African Rand (ZAR) Vulnerable Ahead of Trade Balance Data
The South African Rand could find a rallying point ahead of the weekend if October’s trade balance shows a narrowing on the month.
A smaller trade deficit would give investors some cause for confidence in the outlook of the South African economy, shoring up ZAR exchange rates.
While doubts remain over South Africa’s underlying economic health and ability to pick up momentum in the months ahead an improved trade balance may still give the Rand a temporary boost.
On the other hand, a widened deficit would leave the Rand exposed to fresh downside pressure, especially if the trade spat between the US and China shows signs of escalating.
Thursday’s producer price index data may also provoke volatility for the EUR/ZAR exchange rate, especially if inflationary pressure continues to pick up.
Easing Eurozone Inflation to Limit Euro (EUR) Exchange Rate Upside
Demand for the Euro could weaken further, meanwhile, if November’s German and Eurozone consumer price index data proves underwhelming.
Forecasts point towards an easing in inflation on the year, with the headline Eurozone CPI expected to soften from 2.2% to 2.0%.
This would put the annual inflation rate back in line with the European Central Bank’s (ECB) 2% target, giving policymakers less incentive to consider raising interest rates in the near future.
As long as inflation fails to show signs of acceleration the case for a more hawkish ECB outlook will diminish, to the detriment of the Euro.
However, if price pressures pick up further on the month in November this could encourage the Euro to South African Rand (EUR/ZAR) exchange rate to recover some ground.