The Euro South African Rand (EUR ZAR) exchange rate began to slide from its best levels on Thursday as a report from Reuters suggested that the Rand would start stabilising following the political uncertainty that has rocked it in recent days.
The South African Rand has plummeted over the last couple of weeks as markets reacted to the sudden dismissal of much respected Finance Minister Pravin Gordhan as President Jacob Zuma sought to reshuffle his cabinet.
The removal of Gordhan was not viewed positively by investors who believed the former Finance Minister was a ‘safe pair of hands’ for South Africa’s economy, and the move prompted ratings agency S&P Global to downgrade the country’s credit rating to junk status.
At the time of the downgrade an S&P representative said;
‘Internal government and party divisions could, we believe, delay fiscal and structural reforms, and potentially erode the trust that had been established between business leaders and labour representatives (including in the critical mining sector).’
Gordhan was replaced by Malusi Gigaba, who markets fear will be a simple ‘yes man’ for Zuma as he attempts to implement a ‘radical’ spending package, something that Gordhan had repeatedly blocked as he attempted to prevent South Africa’s credit rating from being downgraded.
However, according to a poll by Reuters, economists expect that the Rand will now stabilise as Gordhan’s dismissal and South Africa’s junk credit rating have now been priced in by markets.
The Rand’s decline has also been far less dramatic that after the sacking of Nhlanhla Nene as finance minister in 2015 as markets have suspected that Zuma would attempt to replace Gordhan for some time now.
Hugo Pienaar, economist at the Bureau for Economic Research said;
‘One has to remember that Nene-gate was a total shock. It came out of the blue, whereas what has happened now, both the reshuffle and the ratings downgrade were not totally unexpected; to an extent they have been discounted.’
Meanwhile the EUR ZAR exchange rate’s slide was slowed by the release of some upbeat economic data from Germany, with Industrial Production proving to be unexpectedly resilient in February.
While analysts had forecast that German Factory output would contract by 0.1% in February, strong demand for German goods saw production continue to grow at 2.2% – a second consecutive month of growth.
This strong demand was reflected in Germany’s Trade Balance as the country’s trade surplus surged to €19.9bn over the same period, up from a twelve month low of €14.9bn at the start of the year.
Looking ahead to next week the EUR ZAR exchange rate may rally on Tuesday with the release of the Eurozone’s latest economic sentiment survey data, should sentiment rise as expected.
However, there are concerns that the uncertainty of the French elections and the start of Brexit could cause confidence to falter this month, possibly leading to the Euro falling evening further.
Meanwhile South Africa will release its Consumer Confidence figures next week, which could see the Rand tumble if household sentiment was negatively impacted by the political infighting of the ANC during the first quarter of 2017.
Current Interbank Exchange Rates
At the time of writing the EUR ZAR exchange rate was trending around 14.65 and the ZAR EUR exchange rate was trending around 0.07.