Euro South African Rand (EUR/ZAR) Exchange Rate Falls as Risk Appetite Rises
The Euro South African Rand (EUR/ZAR) exchange rate slumped today and is currently trading at around R16.3121.
Data released on Friday revealed South Africa’s net foreign reserves increased to $44.226 billion in August from 43.906 billion in the previous month, adding to risk-appetite and contributing to an upswing in support for the South African currency.
On Thursday, the US and China agreed to October trade talks, sparking a rise in riskier assets like the Rand. However, any further tension between the two superpowers could see the Rand slump.
Treasury Partner at Peregrine Treasury Solutions, Bianca Botes wrote:
‘The Rand can be expected to remain below 15.00 [against USD] for the time being. However, any escalation of tension would see the Rand rapidly lose ground again.
‘The tone of the Fed this evening will also determine the landscape of markets heading into next week.’
Merkel: US-China Trade War Affecting Whole World
Speaking during her visit to Beijing on Friday, German Chancellor Angela Merkel noted that the US-China trade war is ‘affecting the whole world’.
Underlining this sentiment, Friday’s German industrial production slumped by a lower-than-forecast -0.6% in July, feeding into fears the Eurozone’s largest economy might suffer a third quarter recession.
Single currency sentiment was dampened as data also revealed a -1.8% decline in output for the second quarter
Alexander Krueger, economist for Bankhaus Lampe noted:
‘A recession in the industrial sector will continue and production has fallen for the fifth consecutive month, that firms up the prospect of a technical recession.’
The German economy is export-reliant and currently suffering due to slower economic growth, Brexit and the United States’ trade policies.
Euro (EUR) Slumps as German Construction Activity Falls to Five Year Low
Thursday saw the Eurozone hit with further disappointing data as German construction activity plunged at its sharpest rate since June 2014.
Added to this, Markit’s construction PMI revealed slumping optimism within the sector.
Commenting on the data release, IHS Markit’s Principal Economist, Phil Smith noted:
‘Signs of a rebound in the construction sector following the slowdown in the second quarter haven’t yet materialised. Instead, trends have turned increasingly negative, with new orders and expectations sinking deeper into contraction territory amid reports of growing concerns among clients about an economic slowdown and a lack of tender opportunities from the public sector.’
Euro South African Rand Outlook: More Losses to Come?
Looking ahead to the start of next week, the Euro (EUR) could continue to fall against the South African Rand (ZAR) following Germany’s trade balance data.
Meanwhile, the Rand could make further gains on Tuesday following the release of July’s manufacturing production data.
If July’s production rises higher than forecast, rebounding from the previous month’s slump, the Euro South African Rand (EUR/ZAR) exchange rate could fall.