Euro South African Rand (EUR/ZAR) Exchange Rate Rallies as US-China Trade Tensions Escalate

Heightened US-China Tensions Shore up Euro to South African Rand (EUR/ZAR) Exchange Rate

As relations between the US and China continued to sour the Euro to South African Rand (EUR/ZAR) exchange rate returned to a bullish trend.

With the Trump administration threatening to cut trade ties with China investors were encouraged to adopt a more risk-averse mentality, leaving the South African Rand (ZAR) under pressure.

If the world’s two largest economies are dragged into a fresh trade spat this could limit the potential for an imminent global recovery from Covid-19 disruption.

The threat of global trade seeing a further deterioration in the months ahead reduced the appeal of the South African Rand ahead of the weekend.

Euro Trends Higher in Spite of German Recession News

Although the German economy fell into a state of technical recession in the first quarter of 2020 this was not enough to drag the Euro (EUR) lower across the board today.

The downward revision of the fourth quarter gross domestic product pushed the Eurozone’s powerhouse economy into reverse, with a further decline looking likely in the second quarter.

While signs point towards the German economy shedding significant momentum as a result of the Covid-19 lockdown EUR exchange rates held onto a generally positive footing.

Investors remain confident that the wider Eurozone economy will see a solid rebound in activity before the end of the year as the initial impact of the pandemic fades.

As Simon Wells, chief European economist at HSBC, noted:

‘Although we now expect a slower rebound, it is still very swift by historical standards. This reflects the unusual composition of the recession.’

Stronger Eurozone Economic Sentiment Index to Offer EUR Exchange Rate Boost

Demand for the Euro could pick up further on Tuesday as forecasts point towards an improvement in May’s set of ZEW economic sentiment surveys.

Evidence that confidence within the currency union has already started to recover from the Covid-19 shock may offer the EUR/ZAR exchange rate another solid boost.

While the German current conditions index looks set to remain in negative territory this is unlikely to weigh on the single currency.

As long as markets see reason to bet that the Eurozone economy will return to normal sooner rather than later the Euro should hold onto its gains in the near term.

South African Rand Support Unlikely to Improve as Global Trade Worries Persist

The South African Rand could remain on the back foot, meanwhile, until worries over the global trade outlook ease.

If tensions between the US and China fail to show signs of easing ZAR exchange rates look vulnerable to greater selling pressure.

Tuesday’s set of South African manufacturing and mining production figures may offer the Rand some support, though.

A solid month of production growth in February could ease concerns over the health of the South African economy, suggesting that the country was on a stronger footing before entering lockdown.

Louisa Heath

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