The Euro has traded higher against the South African Rand today, around a rate of 16.6143. This appreciation has come despite highly limiting news from the European Central Bank (ECB).
In a highly-anticipated press conference, ECB President Mario Draghi has disappointed traders by not signalling the start of tapering action on the ECB’s bond-buying program.
The bank has cut its monthly buying limit from 60bn to 30bn, but it was made clear that this is no guarantee of further limit reductions in the coming months.
(First published October 25th, 2017)
The Euro has risen by 2% against the South African Rand today, thanks to highly supportive Eurozone news and continued South African uncertainty.
- EUR ZAR pairing trades at 16.4611 – ZAR EUR rate falls to 0.0608
- Euro firms on IFO scores – German confidence rises higher
- South African Rand weakened by budget speech – Major decisions delayed
- Euro volatility ahead on Draghi speech – Will Rand be moved by rising jobless rate?
The Rand has conversely struggled, due to low confidence about future economic stability.
Euro Surges after Forecast-Beating German Confidence Scores
IFO confidence measures have held up the Euro today, enabling a clear advance against the South African Rand.
These have looked at Germany in October and have shown a record-high figure for business confidence in October.
Indexes for future expectations and current conditions also showed growth in October, above forecasts in both cases.
After the data came out, IFO President Clemens Fuest said;
‘Companies are very optimistic about the months ahead. They also upwardly revised their very favourable assessments of the current business situation. Germany’s economy is powering ahead’.
Bleak Forecast from ZA Budget Speech Brings Rand to Euro Slump
The South African Rand has declined considerably against the Euro today, owing to extreme uncertainty about the future of the economy.
This comes as ZA Finance Minister Malusi Gigaba delivered a budget speech in parliament, which had a lukewarm reception.
Crucially, he didn’t use this opportunity to unveil any real changes, instead delaying key decisions until February.
Gigaba has been gloomy overall, warning that the national debt-to-GDP ratio could hit 61% by 2022; it was previously 51.7% in 2016.
He has also given a low estimate on GDP growth, forecasting 1.9% in 2020. In July, this was higher at 2.5%.
Highlighting South Africa’s current performance issues has been BizNews Deputy Managing Editor Gareth Van Zyl;
‘For a developing country, this just isn’t good enough, especially amid the backdrop of a global economy that is picking up steam. South Africa is growing slower than Greece, a country which experienced a complete economic meltdown several years ago’.
Euro could Rally on Hawkish Comments from ECB’s Draghi
Mario Draghi, President of the European Central Bank (ECB), could have a significant influence on the Euro on Thursday.
Draghi will be speaking at the ECB press conference after the central bank’s October interest rate decision; in the latter case, the bank isn’t expected to touch rates.
In previous months Draghi has suggested that he will announce significant policy changes during the October meeting, so there is a high chance of Euro volatility.
The main thing economists are looking out for is a statement about quantitative easing, the ECB tool for stimulating the economy by buying assets.
If Draghi commits to unwinding the ECB’s vast portfolio of assets and bonds then the Euro could rally.
This is because it would be a very clear step towards eventually tightening monetary policy, leading to a long-awaited interest rate hike.
The next major ZA news will come on October 31st, showing unemployment and trade stats. The Q3 unemployment rate is tipped to rise, but so is the September trade surplus.
The Rand might not be moved if these forecasts are accurate, given that they suggest a balance of positive and negative news.
Current Interbank EUR ZAR Exchange Rates
At the time of writing, the Euro to Rand (EUR ZAR) exchange rate was trading at 16.4611 and the Rand to Euro (ZAR EUR) exchange rate was trading at 0.0608.