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Euro South African Rand (EUR/ZAR) Exchange Rate Jumps as SA Retail Sales Slump

South African Retail Sales Drop Boosts Euro South African Rand (EUR/ZAR) Exchange Rate

A sharp -0.9% monthly decline in South African retail sales helped the Euro to South African Rand (EUR/ZAR) exchange rate push higher today.

This dip in retail sales added to existing concerns surrounding the health of the South African economy, leaving the South African Rand (ZAR) on a weaker footing.

Investors also found cause for concern as state power utility Eskom announced the implementation of a nationwide blackout due to a shortage of generating capacity.

The move could weigh heavily on economic activity, particularly if further blackouts follow in the days ahead.

With confidence in the outlook of the South African economy already limited a sustained period of power limitations may drive ZAR exchange rates to fresh lows.

Narrowed Eurozone Trade Balance Fails to Limit Euro (EUR)

Although the Eurozone trade balance saw a more significant decline than forecast in August this was not enough to knock the EUR/ZAR exchange rate off its uptrend.

As the surplus narrowed from 24.8 billion to 14.7 billion confidence in the economic outlook of the currency union diminished.

Fresh signs of tension between the US and China also put pressure on the Euro (EUR) amid fears that last week’s trade progress could be lost.

With global trade conditions looking set to remain weak in the near future the Eurozone economy appears on track for another quarter of underwhelming growth.

Even so, with market risk appetite in decline the EUR/ZAR exchange rate was still able to push higher as the appeal of the risk-sensitive Rand faded.

Further Signs of Eurozone Economic Weakness Could Dent EUR/ZAR Exchange Rate

However, if Friday’s Eurozone current account shows a similar narrowing this could put the Euro on the back foot against its rivals.

As long as signs continue to point towards a sustained slowdown in Eurozone trade worries over the potential of a weaker third quarter gross domestic product reading are likely to mount.

With the German economy already looking at risk of entering a technical recession evidence of a wider Eurozone decline could weigh heavily on EUR exchange rates.

Even so, lingering market risk aversion could help to shore up the EUR/ZAR exchange rate even if Eurozone data continues to disappoint.

Concerns over the health of the South African economy may equally encourage the Euro to extend its gains against the Rand in the remainder of the week.

Thursday’s building permits data could put additional pressure on the South African Rand if the construction sector fails to show fresh signs of resilience.

A sharp decline in permits would leave ZAR exchange rates vulnerable to further selling pressure, given the existing lack of confidence in the underlying performance of the South African economy.

Unless the construction sector can demonstrate greater strength the Rand looks set to shed further ground against its rivals.