Euro South African Rand (EUR/ZAR) Exchange Rate Edges Up as SARB Calls for Structural Reforms
UPDATE: The Euro South African Rand (EUR/ZAR) exchange rate rose and the pairing is currently trading at around R16.2318.
On Thursday, the South African Rand slumped against the Euro as South Africa’s central bank left interest rates unchanged at 6.5% as expected.
The Rand was left under pressure as the bank left its 2019 forecast unchanged but cut its 2020 and 2021 growth expectations to 1.5% and 1.8%, respectively.
The South African Reserve Bank (SARB) repeated its calls for structural reforms to raise the growth rate.
The bank also added the weakness in many sectors of the economy remained cause for concern.
Euro South African Rand (EUR/ZAR) Exchange Rate Slumps as South African Retail Sales Jump
The Euro South African Rand (EUR/ZAR) exchange rate slumped and the pairing is currently trading at around R16.1861.
On Wednesday, South African retail sales jumped 2% following a year-on-year increase of 2.4% in June.
Monthly sales rose 0.2% and in the three months to the end of July sales jumped 2% compared to the same period last year.
This likely provided the Rand with an upswing of support ahead of this evening’s US Federal Reserve interest rate decision.
The focus is on whether or not the Fed slash interest rates for the second time in 2019 which would then set the tone for the future of monetary policy.
Commenting on this, FX market analyst at Monex, Simon Harvey noted:
‘We are almost certain to see a cut by the Fed today, but it will be the forward guidance to how they will decide future monetary policy that will be in focus.’
Euro (EUR) Slumps as Eurozone Inflation Left at Three-Year Low
On Wednesday, disappointing data from the Eurozone left the Euro under pressure against the South African Rand.
While the bloc’s inflation rate remained steady in August, it was left at its lowest level in around three years.
The Consumer Price Index (CPI) edged up 1%, and month-on-month missed market expectations and edged up 0.2%.
The single currency slumped against the Rand as inflation continued to fall short of the European Central Bank’s (ECB) 2% target.
Meanwhile, a speech from the ECB Vice President Luis De Guindos further dampened sentiment in the Euro.
De Guindos noted that as long as the bloc’s inflation does not meet the bank’s target, interest rates will not rise.
He also added that economic risks remain tilted to the downside which could suggest an ECB rate hike is not likely to happen any time soon.
South African Rand (ZAR) Rises as ZA Inflation Hits 4.3%
Statistics South Africa revealed that the country’s annual inflation rate rose from 4% to 4.3% in August.
Month-on-month, South Africa’s consumer prices rose 0.3% which likely buoyed the South African Rand.
Meanwhile, core inflation rose by an annual 4.3% in August compared to July’s 4.2%.
The main contributors to the upswing in inflation were food and non-alcoholic beverages, along with housing and utilities.
The Rand rose as markets were reassured by Saudi Arabia that oil production would be restored after the attack halved the country’s crude oil supply.
On Tuesday, Saudi Energy Minister Prince Abdulaziz bin Salman stated the kingdom would restore its lost oil production by the end of the month.
Euro South African Rand Outlook: Will a Dovish SARB Weigh on ZAR?
Looking ahead, the South African Rand (ZAR) could slide against the Euro (EUR) following the release of July’s building permits.
If South Africa’s annual building permits continue to slump, it could dampen Rand sentiment.
Meanwhile, the South African Rand could slide further following the South Africa Reserve Bank’s (SARB) interest rate decision.
While the bank is expected to leave rates unchanged, if the SARB’s tone is overly dovish, the Euro South African Rand (EUR/ZAR) exchange rate could edge up.