Euro South African Rand Exchange Rate Rises, South African Rand Struggles on Risk-Off Market Mood

EUR/ZAR Exchange Rate Edges Higher, SA Government Spending Plans in Focus

The Euro South African Rand (EUR/ZAR) exchange edged higher today, with the pairing currently trading around R16.087as rising concerns over the South African Government’s tax and spending plans for 2020-2021 are rising, with further guidance for the nation’s economy essential to the nation’s domestic fiscal policy going forward.

Anezka Christovova, an analyst at JP Morgan, London, commented:

‘In the near term, [the South African Rand] is likely to be vulnerable to a disappointing budget. We have previously found that a reaction to a downgrade decision is more pronounced if it comes at a time when the exchange rate is not pricing the risk particularly well, trading fair or overvalued heading into such an outcome.’

The South African Rand (ZAR) is also being held back by rising global economic uncertainty, with China, a close trading partner to South Africa, coming under increasing pressure from the coronavirus outbreak.

Annabel Bishop, an Economist at Investec comments:

‘While global market players have shown some risk aversion on worries about the spread of the coronavirus, SA’s increasing risk of a Moody’s downgrade is proving a dead weight for the domestic currency.’

EUR/ZAR Exchange Rate Edges Higher, German Consumer Sentiment Rises in February

The Euro (EUR) rose against the South African Rand (ZAR) after a better-than-expected rise in February’s German consumer confidence survey, which rose from 9.7 to 9.9.

Rolf Buerkl, a researcher at GfK, commented:

‘The positive start of the consumer climate in 2020 confirms our assessment that private consumption will continue to be an important pillar of the German economy this year.’

Today also saw the French economy, which is the second-largest in the Eurozone, receive a boost from improving French consumer confidence in January, despite major strikes against pension reform.

However, some of the Euro’s gains were held back today, with uncertainty over China’s spreading coronavirus causing concern for the German economy, which is heavily reliant on global trade.

With China’s economy coming under increasing pressure due to the outbreak, this is leaving markets wary of trading in the single currency, with rising fears that China’s economic downturn could negatively impact Germany’s sensitive manufacturing sector.

EUR/ZAR Outlook: Could the Euro Rise on a Positive German Inflation Report for January?

Euro (EUR) investors will be awaiting tomorrow’s release of January’s flash German inflation figure, which is expected to rise from 1.5% to 1.7%. As a result, we could see the EUR/ZAR exchange rate begin to rise as Germany’s economic outlook improves.

Tomorrow will also see the release of the Eurozone’s unemployment rate report for December, which is expected to remain at 7.5%. Any signs of an improving labour sector in the bloc, however, would prove EUR-positive.

The EUR/ZAR exchange rate could also improve if tomorrow’s release of South Africa’s PPI report for December undershoots forecasts and lowers the prospects for South Africa’s struggling economy.

David Moore

Contact David Moore


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