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EUR ZAR Exchange Rate Skyrockets Following Political Infighting in South Africa

The Euro South African Rand (EUR ZAR) exchange rate surged during trading yesterday following a rumour that South African President, Jacob Zuma was preparing to remove Finance Minister Pravin Gordhan.

The speculation was prompted by the sudden recall of Gordhan from London, where he was due to meet investors from the UK and America. Observers suggested that Zuma may be planning a cabinet reshuffle, causing the Rand to plummet.

Zuma has made increasingly aggressive moves against his Finance Minister in recent months as Gordhan resists Zuma’s plans to increase government spending as he attempts to avoid South African Bonds from being given ‘junk’ status.

Bloomberg’s Sam Mkokeli writes;

‘While Gordhan has led efforts to keep spending in check and fend off a junk credit rating, Zuma wants to embark on radical economic transformation that he says will tackle racial inequality and widespread poverty.’

Speculation was driven further by reports that Zuma had told members of the ANZ allied, communist party that he would be sacking Gordhan.

The possible firing of the much respected Gordhan caused a major drop in ZAR sentiment as markets fear that his economic successes could be undone by his successor as Zuma looks to replace him with more pliable ‘yes man’.

The situation also closely echoes the move by Zuma in 2015 to replace his then Finance Minister Nhlanhla Nene with an unknown lawmaker, a move that also caused the South African Rand to plummet and led to Gordhan taking over the post just four days later following pressure from business leaders.

Markets also fear that Gordhan’s sacking could cause further political turmoil in the country if the ruling African National Congress is split in two as allies of both men begin to take sides.

However the Rand was able to stem some of its losses overnight as Zuma delayed the start of the cabinet meeting until Wednesday so members could attend the funeral of anti-apartheid icon, Ahmed Kathrada.

Meanwhile the Euro was strengthened this morning as sentiment in the Eurozone’s third largest economy unexpectedly improved this month.

Data compiled by The National Institute for Statistics (Istat) showed that both Italian Business and Consumer Confidence rose in March, climbing from 106.4 to 107.1 and 106.6 to 107.6 respectively.

The uptick in business sentiment was particularly of note as it climbed to a near six-year high with firms continuing to be unfazed by the bailout of Italy’s third-largest bank, Monte dei Paschi, at the end of 2016.

The upbeat result was largely attributed to the Manufacturing sector as strong orders and rising production expectations overcame a more downbeat survey from the construction sector.

Looking ahead the EUR ZAR exchange rate is likely to advance further later today if Zuma follows through with the sacking of Gordhan as his cabinet reconvenes later this afternoon.

Meanwhile, the Euro is likely to be bolstered by an overall reading of the Eurozone’s business confidence tomorrow as economists forecast that it will rise in March as firms begin to shake off concerns of political disruption in the EU after the defeat of Geert Wilders in the Dutch elections earlier this month.

Current Interbank Exchange Rates

At the time of writing the EUR ZAR exchange rate was trending around 14.11 and the ZAR EUR exchange rate was trending around 0.07.