Euro South African Rand Exchange Rate Rises as ECB Promises ‘No Limits’ Stimulus

EUR/ZAR Exchange Rate Increases as ECB Combats Covid-19 Pandemic

The Euro South African Rand (EUR/ZAR) exchange rate soared by 1.3% today after the European Central Bank (ECB) launched a €750bn stimulus package to relieve the economic impact of the coronavirus pandemic. The pairing is currently trading around R18.907.

ECB President Christine Lagarde said that the Bank had ‘no limits’ in its commitment to supporting the bloc’s economy.

EUR investors breathed a sigh of relief, with hopes returning that the Eurozone could stave off a recession with the ECB’s newly implemented and strong quantitative easing program.

David Zahn, the Head of European Fixed Income at Franklin Templeton, comments:

‘This also demonstrates that the ECB will continue to unveil measures to combat the dislocations in the market resulting from the Pandemic. The increased quantitative easing program combined with the measures the ECB announced at last week’s should be very supportive for the Euro-zone.’

However, with financial markets remaining sensitive to the growing pandemic and the various Government’s preventative measures, single currency investors are cautious over the projected depth of the Eurozone’s possible recession.

South African Rand (ZAR) Exchange Rate Falls as Risk-Off Market Mood Increases

The South African Rand (ZAR) as investors flee from emerging market currencies and seek refuge in safe-havens like the US Dollar and the Swiss Franc amid the global Covid-19 crisis.

The ZAR/EUR exchange rate also remains subdued ahead of the interest rate decision from the South African Reserve Bank (SARB) later this afternoon. The Bank is expected to slash its interest rate by 50 basis points.

Analysts at NED Bank were downbeat in their assessment:

‘Markets across all asset classes are now in full retreat as the effects of COVID-19 weigh on the global economic outlook.’

‘Today, the markets are eagerly anticipating the SARB (monetary policy committee) meeting, as local liquidity has dried up of late. The current consensus view is for a 50bps cut, although given the current circumstances, there may be opportunity for more.’

ZAR investors are also concerned that South Africa’s weak economy could require more accommodation than the SARB could reasonably provide. Consequently, the ZAR/EUR exchange rate is likely to remain under downwards pressure for the foreseeable future.

EUR/ZAR Outlook: Could the Euro Ease on Eurozone Recession Fears?

Euro (EUR) investors will continue to monitor the Eurozone’s economic health post-ECB stimulus and quantitative easing. We could see the single currency begin to lose some of its gains against the South African Rand as the bloc’s closed borders could push the economy towards recession in the near-term.

We will likely see the South African Rand (ZAR) continue to sink against its peers as markets continue to sell off risk-sensitive and emerging market currencies in favour of safe-havens.

David Moore

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