EUR/ZAR Exchange Rate Plummets, US Rate Cut Hints in Focus
The Euro South African Rand (EUR/ZAR) exchange rate plummeted to R16.920 today. South Africa’s inflation figure for July has boosted the likelihood of a rate cut from South Africa’s Reserve Bank (SARB) which would offer a boost to the ailing economy.
The year-on-year figures slowed to 4.0% in July from 4.5% in the previous month, below the mid-point of SARB’s target of 3 to 6 per cent.
John Ashbourne, senior emerging markets Economist at Capital Economics, said a decline in oil prices would further support speculation for a September rate cut.
Mr Ashbourne added:
‘[O]il prices will [likely] fall in year-on-year terms over the third quarter and into the fourth quarter, depressing headline inflation and opening a brief window for one more 25 basis point cut.’
Meanwhile, ZAR also firmed this morning as traders await the US Federal Reserve’s meeting minutes for signs of a near-term interest rate cut.
With high expectations for a cut, traders have been seeking out riskier assets like the South African Rand.
EUR/ZAR Exchange Rate Sinks on Italian Political Turmoil and Brexit Uncertainty
The Euro (EUR) continued struggling today following yesterday’s resignation of Italian Prime Minister Giuseppe Conte.
Mr Conte lashed out at coalition partner and League leader Matteo Salvini whom he accused of being driven by ‘personal and party interests’.
Consequently, Italy now faces political uncertainty as the League – a prominent Eurosceptic party – could form a majority with the anti-establishment 5-Star Movement. Such an outcome could increase the possibility of Italy’s exit from the European Union.
However, Olaf Scholz, Germany’s Finance Minister, said he sees ‘no sign’ of a crisis for Europe emerging from Italy’s current political upheaval:
‘[I]t looks as if a new government, perhaps with a different composition, will emerge.’
Brexit also remains in focus for Euro traders, with Prime Minister Boris Johnson meeting today with German Chancellor Angela Merkel, and tomorrow with President Emmanuel Macron.
Euro traders remain cautious as both leaders are expected to remain unyielding on the Irish backstop issue, increasing the likelihood of a no-deal Brexit.
EUR/ZAR Outlook: US Jackson Hole Symposium in Spotlight
Euro traders will be looking ahead to the publication tomorrow of the German Markit Manufacturing PMI for August, which is expected to ease from 43.2 to 43.
This could see the Euro continue to fall against the South African Rand on fears of an imminent German recession.
The European Central Bank’s monetary policy meeting report is also due tomorrow with any indications of a dovish tone from the central bank proving negative for the Euro.
Meanwhile, South African Rand traders will be paying close attention to the US Jackson Hole Symposium in which Fed Chair Jerome Powell is expected to give clearer signals about the possibility of imminent US rate cuts.
The EUR/ZAR exchange rate is likely to remain subdued tomorrow, with the South African Rand likely to benefit from heightened risk-appetite spurred by signs of a weakening US economy.