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Euro South African Rand (EUR/ZAR) Exchange Rate Soars as SA’s July PPI Falls below Forecasts

EUR/ZAR Exchange Rate Rises on SA Economic Woes

The Euro South African Rand (EUR/ZAR) exchange rate plummeted by -0.8% to R16.919 following the publication of South Africa’s July Producer Price Index, which fell below forecasts from 0.40% to -0.20%.

The year-on-year report also showed deterioration from 5.8% to 4.9%.

As today’s figures have confirmed very little inflation pressure behind the South African economy, this could bolster the chances of a South African Central Bank’s rate-cut from the monetary policy committee on September 17.

Meanwhile, the Centre for Development and Enterprise (CDE) was downbeat about the South African economy:

‘South Africa’s government and its state-owned companies (SOCs) have outstanding debts of over R3 trillion, a figure that is almost four times higher than it was in 2008 and 15 times higher than in 1992… Expressed as a percentage of GDP, debt now exceeds 60%, a return to the highest levels recorded at the end of apartheid. Critically, it shows little sign of slowing its upward trajectory.’

The risk-averse South African Rand has failed to benefit from easing trade tensions between the US and China today, with domestic economic concerns remaining in focus.

China has signaled that trade talks could be back on track between the two superpowers. Any further, and more positive, developments between the two nations could bolster risk appetite, thus providing the ZAR with some much-needed uplift.

EUR/ZAR Exchange Rate Rises despite Easing German Inflation in August

The Euro improved on the South African currency despite today’s publication of August’s flash German inflation figure, which fell below forecast from 1.1% to 1.0%.

With Germany’s economy continuing to suffer from global trade disputes, slowing foreign demand, and uncertainty surrounding the UK’s Brexit, many European currency traders are feeling increasingly jittery.

Carsten Brzeski, an economist at ING, commented:

‘All of this only means that the protection shield against the industrial slowdown and external woes is getting thinner if not wearing out.’

As today’s inflation figures fell well below the European Central Bank’s target – 2% – ahead of its September 12 policy meeting, Euro traders are increasingly jittery on the heightened likelihood of forthcoming stimulus measures.

Today also saw the flash Spanish inflation figures for August, which also eased below forecasts from 0.5% to 0.3% – a three-year low.

EUR/ZAR Outlook: Eurozone Inflation Figure in Focus

Euro traders will be looking ahead to tomorrow’s publication of the flash Eurozone’s inflation figure, which is expected to improve from 0.9% to 1.0% in August.

However, as this is expected to fall below the ECB’s target, we could see the Euro begin to weaken against the ZAR.

Meanwhile, South African Rand traders will be paying close attention to global economic and political developments.

The EUR/ZAR exchange rate is likely to remain volatile for the remainder of this week, as Europe’s economic woes are likely to begin to weigh on the Euro tomorrow.