Euro South African Rand (EUR/ZAR) Exchange Rate Falls on Risk of Moody’s Downgrade

Euro South African Rand (EUR/ZAR) Exchange Rate Jumps Over 1%

The Euro South African Rand (EUR/ZAR) exchange rate jumped over 1%, leaving the pairing trading at around R16.8090.

The South African Rand slumped today as Covid-19 fears increased after the first infection of unknown origin was confirmed in the USA.

This sparked fears the outbreak will turn into a pandemic, as new infections are growing at a faster rate outside of China.

Meanwhile, on early Thursday, the Rand firmed slightly after Finance Minister Tito Mboweni proposed to make cuts to the public sector wage bill.

This provided some support as rising wages have been a threat to South Africa’s already-stretched public finances.

However, due to opposition from labour unions, there is a lot of skepticism that he will be able to achieve over 160 billion Rand worth of cuts over three years.

Despite Mboweni’s comments, some expect Moody’s to take the country’s final investment-grade credit rating during its March review.

John Ashbourne at Capital Economics noted:

‘The weakening fiscal position and rising debt burden have further increased the risk of another downgrade from Moody’s.

‘The situation is clearly even worse than it was in November, when Moody’s adopted a negative outlook.’

ECB ‘Very Worried’ About Spread of Virus

On Thursday, a senior European Central Bank (ECB) policymaker revealed the bank is ‘very worried’ about the virus.

However, the Euro continued to rise against the Rand as investors moved away from riskier assets.

Speaking in London, the ECB’s Isabel Schnabel said:

‘All of us are very worried about what is currently happening with respect to the spread of the coronavirus.

‘We know that this is really raising uncertainty to a large degree, for the global growth outlook but of course also for the outlook for the Euro area.

‘But what we really need to understand when we are doing monetary policy is what are the potential medium-term implications, and at the moment this is unclear.’

German Health Minister Warns of Covid-19 Epidemic

The single currency rallied against a weaker South African Rand despite Germany’s health minister issuing a coronavirus warning.

German Health Minister, Jens Spahn said on Wednesday that the country was at the beginning of a Covid-19 epidemic.

This was after the country experienced new cases not linked to the original source in China.

Spahn said:

‘The infection chains are partially no longer trackable, and that is a new thing.

‘Large numbers of people have had contact with the patients, and that is a big change to the 16 patients we had until now where the chain could be traced back to the origin in China.

‘We are acting swiftly and adapting our reactions to the current situation, and unfortunately I have to say that the situation has changed in the past hours.’

Meanwhile, Italy is experiencing the worst outbreak in Europe with the country reporting more than 400 cases and 12 deaths.

Reports show that globally over 80,000 people in more than 40 countries have been infected by the virus that originated in China.

Euro South African Rand Outlook: Will German Unemployment Buoy EUR?

Looking ahead to Friday, the Euro (EUR) could extend gains against the South African Rand (ZAR) following the release of German unemployment data.

If unemployment in the bloc’s largest economy edges lower in January, it will buoy the single currency.

Meanwhile, the Rand will suffer losses if risk appetite continues to slide.

If the number of Covid-19 cases increases across the world, with further signs it will be classed as a pandemic, the Euro South African Rand (EUR/ZAR) exchange rate will edge higher.

Millie Empson

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