Euro to South African Rand (EUR/ZAR) Exchange Rate Falls on Rand Strength and Mixed Eurozone Data
While some of the Eurozone data published over the past week beat expectations, much of it fell short too and as a result the Euro to South African Rand (EUR/ZAR) exchange rate has been more easily pushed lower by a resurgent South African Rand (ZAR).
After opening the week at the interbank level of 16.25, EUR/ZAR quickly plummeted on a mixture of Euro (EUR) weakness and Rand strength, briefly touching a monthly inter-bank low of 15.77 in the middle of the week.
Since then, while EUR/ZAR has been able to avoid further losses it hasn’t recovered too much. At the time of writing on Friday, EUR/ZAR was continuing to trend just slightly above its worst monthly levels.
The primary cause of Euro to Rand exchange rate losses this week was a strong Rand, as the currency surged following the latest South African credit rating news and rising market risk-sentiment.
Euro (EUR) Exchange Rates Unable to find Solid Support amid Mixed Data
Euro strength has been limited this week overall, as Eurozone data fails to indicate that the Eurozone economy is seeing a sustained rebound from the weak performance in recent months.
At the beginning of the week, Eurozone manufacturing PMI data printed even lower than projected, with many Eurozone members showing contractions in activity.
This was followed on Thursday by a surprisingly steep -4.2% contraction in German factory orders, according to February’s print.
These stats contrasted with Wednesday’s Eurozone services PMIs from March and retail sales stats from February, which both bolstered hopes that non-manufacturing aspects of Eurozone economic activity were rebounding.
Lastly, this morning’s German industrial production stats from February beat expectations and rose to 0.7%, while the previous figure was revised higher from -0.8% to 0.0%.
Despite this, the disappointing manufacturing data weighed heavily as analysts warned there may still be weakness ahead. This prevented the Euro from strengthening versus a stronger Rand.
South African Rand (ZAR) Exchange Rates Surge as South Africa Credit Rating Survives Unscathed
Near the beginning of the week, major credit rating Moody’s let a scheduled rating review for South Africa pass without any change in the nation’s sovereign rating.
Concerns had been rising that South Africa’s weakened economic outlook would lead Moody’s to downgrade its credit rating for the nation, so the rating being left unchanged was a relief to investors.
The South African Rand (ZAR) surged in response to the news, and as a result was able to capitalise on this week’s rise in risk-sentiment.
Investors found high-yield currencies, including emerging market currencies like the Rand, more appealing amid news that the US and China were closer than ever to reaching a major trade deal.
One official said that a deal was around 90% completed, but acknowledged that the final stages could be the most difficult.
Due to the Moody’s review and higher risk-sentiment though, the South African Rand sustained major gains this week despite lingering concerns about Eskom and South Africa’s ongoing energy crisis.
Euro to South African Rand (EUR/ZAR) Exchange Rate Traders Await ECB Decision
As recent Eurozone data has offered a mixed indication of the Eurozone economy, the European Central Bank (ECB) is unlikely to be particularly optimistic during its upcoming policy decision next week.
The ECB will hold its April policy decision on Wednesday, and following the bank’s notably more dovish tone in its previous meeting investors are anxious to see if the bank will point towards possible easing measures.
If the bank is concerned about a further slowdown in the economy and inflation, it could indicate that more quantitative easing (QE) is on the way.
The bank’s tone on monetary policy is likely to be highly influential for the Euro (EUR), so if the bank appears more optimistic than expected about the Eurozone’s economic rebound the Euro could see a surge in demand next week.
EUR/ZAR movement will also be influenced by Eurozone and South African data over the coming sessions.
This included German trade stats on Monday, South African business confidence on Wednesday, and German inflation and South African manufacturing on Thursday.
Of course, any surprising developments in US-China trade negotiations could also influence the relatively risky South African Rand (ZAR) and the Euro to South African Rand (EUR/ZAR) exchange rate.