Euro to South African Rand Exchange Rate Plunges as US-China Truce Drives Emerging-Market Rally

South African Growth Jumps, EUR/ZAR Exchange Rate Struggles to Rebound from Worst Levels

Markets immediately reacted to the weekend’s US-China trade truce when markets opened on Monday, with the Euro to South African Rand (EUR/ZAR) exchange rate dropping from opening levels of 15.69.

EUR/ZAR hit a three-month low on Monday before rebounding slightly, but the pair still trends over 10 cents lower than the week’s opening levels.

News that the US and China are working to calm trade tensions left investors much hungrier for risk-taking this week, leading to a rally in emerging-market assets like the South African Rand (ZAR).

A lack of supportive Eurozone data has also left the Euro (EUR) weaker.

Euro (EUR) Exchange Rates Unappealing as Eurozone Manufacturing Slows

The Euro (EUR) typically benefits from weakness in its rival, the US Dollar (USD). However, while investors have sold the safe-haven US Dollar this week, the Euro has remained on something of a downtrend.

Investors are hesitant to buy the shared currency as Eurozone data continues to indicate that the bloc’s economy is slowing as we head into 2019.

This, coupled with lasting political uncertainties amid Italy’s controversial budget plans, made it difficult for the Euro to capitalise on the US Dollar’s weakness – and left it vulnerable versus riskier currencies like the South African Rand (ZAR).

Monday saw the publication of the Eurozone’s final November manufacturing PMIs. While these stats did beat projections, they still indicated overall that Eurozone manufacturing was slowing. According to Chris Williamson, Chief Business Economist at Markit:

‘Hopes that the soft patch may prove short-lived are countered by business optimism about prospects for the year ahead remaining among the gloomiest seen since the sovereign debt crisis in 2012, suggesting companies are bracing themselves for further weak demand in the coming months’

South African Rand (ZAR) Exchange Rates Gain on Risk-Sentiment and Growth Rebound

The main catalyst for Euro to South African Rand (EUR/ZAR) exchange rate losses was the weekend’s hotly-anticipated G20 summit in Argentina, where the US and China finally agreed to a ceasefire following months of escalation in trade tensions.

Following a meeting between US President Donald Trump and China President Xi Jinping, the US and China announced a 90 day truce, during which the nations would attempt to negotiate a wide range of issues.

While not a complete resolution to the problems, hopes of a de-escalation left investors far more willing to take risks again.

This led to a surge in demand for emerging-market currencies, including the South African Rand.

On top of this, the South African Rand’s strength was further supported by news that South Africa’s economy had strongly rebounded from its recession – jumping to 2.2% quarterly growth in Q3. The previous figure was revised higher from -0.7% to -0.4%.

The yearly growth rate came in well above 0.5% forecasts too, jumping from 0.4% to 1.1%.

Euro to South African Rand (EUR/ZAR) Exchange Rate May Find Support in Upcoming Eurozone Data

It may be difficult for the Euro (EUR) to mount a solid recovery versus the South African Rand (ZAR) in the coming days, with investors still finding risky emerging-market currencies like the Rand more appealing amid US-China trade hopes.

However, EUR/ZAR may move away from its recent multi-month-lows in the coming days if more-supportive Eurozone data is published.

Wednesday will see the publication of some notable Eurozone ecostats, including the bloc’s final November services and composite PMI figures, as well as October retail sales results.

German factory orders and construction will come in on Thursday, followed by October industrial production on Friday.

The week’s most influential data will be Friday’s Eurozone growth rate projections, which could help the Euro trend more strongly if they surprise to the upside.

Upcoming South African data, on the other hand, won’t be quite as influential but could still drive the Euro to South African Rand (EUR/ZAR) exchange rate slightly if there are no surprising shifts in market risk-sentiment.

Josh Jeffery

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