Euro South African Rand (EUR/ZAR) Exchange Rate Rises as Moody’s Downgrades 2020 Growth Forecast

South African Rand (ZAR) Slumps Near One-Week Low as Moody’s Cuts Growth Forecast

The Euro South African Rand (EUR/ZAR) exchange rate jumped by around 0.4%, leaving the pairing trading around R16.2955.

The South African Rand remained under pressure on Tuesday, after ratings agency Moody’s halved its economic growth forecast.

This increased fears the country may lose its final investment grade rating, pushing the Rand towards a one-week low.

Moody’s downgraded its 2020 growth forecast to 0.7% from 1.5%, stating the impact of rolling power cuts on mining and manufacturing activity.

Commenting on this, analysts at NKC African Economics wrote:

‘The South African economy likely entered a technical recession in H2 2019, while supply-side electricity constraints will cap medium-term growth.

‘Everyone seems to be sitting back and waiting to see what happens next week, hoping that the government preserves what it is doing right [monetary policy] while addressing what it is doing wrong [fiscal policy].’

Euro (EUR) Rises despite Disappointing German Investor Confidence

The single currency continued to climb against the South African Rand despite disappointing German investor confidence data.

German investor confidence has been hit by the outbreak of Covid-19 and recession fears after weak German GDP.

ZEW revealed its measure of German economic sentiment slumped to 8.7, down from January’s four year high of 26.7.

Commenting on this morning’s data, ZEW President Achim Wambach noted:

‘The feared negative effects of the coronavirus epidemic in China on world trade have been causing a considerable decline of the indicator of economic sentiment for Germany.

‘Expectations regarding the development of the export-intensive sectors of the economy have dropped particularly sharply.’

Added to this, ZEW’s current conditions survey plummeted from -9.5 to -15.7 this month, indicating the economy is under pressure.

Euro South African Rand Outlook: South African Inflation on Focus

Looking ahead, the South African Rand (ZAR) could slump against the Euro (EUR) following the release of January’s inflation data.

If South African inflation rises higher than expected, within the South African Reserve Bank’s (SARB) target band, this could be supportive of further rate cuts.

Meanwhile, the single currency could extend gains if the ongoing spread of Covid-19 weighs on ZAR.

If traders continue to flock to safe-haven currencies such as EUR, the Euro South African Rand (EUR/ZAR) exchange rate will rise.

Millie Empson

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