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Euro Rand Exchange Rate Slumps After South Africa Manufacturing Rebound

In spite of a sharp upwards revision to the first quarter Italian gross domestic product the Euro struggled to find any real traction against many of its rivals.

While this stronger showing bodes well for the outlook of the Italian economy, and the wider Eurozone, confidence in the single currency remains somewhat muted.

After both the German and Eurozone consumer price indexes weakened further than forecast in May the chances of the European Central Bank (ECB) adopting a more hawkish outlook diminished.

As policymakers have previously expressed reservations over the strength of domestic inflation this softening is likely to dispel speculation that any tapering of the quantitative easing program could be on the table.

This limited the upside potential of the single currency, particularly as the issue of the Greek bailout continues to hang over the currency union ahead of July’s repayment deadline.

Confidence in the Euro could strengthen if Friday’s Eurozone producer price index figures prove positive, though, with investors likely to greet any indications that underlying inflationary pressure is picking up.

Even so, the Euro South African Rand exchange rate could remain on a weaker footing ahead of next week’s ECB policy meeting.

Although no change in policy is expected at this juncture investors are still likely to pay close attention to the tone of President Mario Draghi.

If Draghi sounds a more optimistic note this could encourage the Euro to trend higher across the board.

However, as Bert Colijn, Senior Economist at ING, noted:

‘May’s weak inflation rate suggests that the ECB is unlikely to be in any rush to change anything more than communication.’

Demand for the Rand, meanwhile, picked up in response to a marked improvement in May’s manufacturing PMI.

The index rose from 44.7 to 51.5, returning to a state of expansion and suggesting that the South African economy is in a stronger state.

This helped to overshadow a more disappointing increase in the first quarter unemployment rate, which rose from 26.5% to 27.7% as political uncertainty continued to dominate the domestic outlook.

Spirits were not dampened by anticipation ahead of Fitch’s latest decision on South Africa’s credit rating, with the agency having already downgraded the country to junk status.

Although the general mood of market risk appetite was limited this was not enough to prevent the Rand making strong gains against the Euro, recovering some of the week’s losses.

Even so, with the appeal of commodity-correlated currencies rather limited and the political situation in South African still less than stable the EUR ZAR exchange rate is unlikely to remain on a downtrend for long.

Current EUR ZAR Interbank Exchange Rates

At the time of writing, the Euro South African Rand exchange rate was slumped in the region of 14.6118. Meanwhile, the South African Rand Euro exchange rate was making gains around 0.06838.