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Euro to South African Rand Exchange Rate Tumbles as Investors Buy Risky Emerging Market Currencies

Euro to South African Rand Exchange Rate Knocked by US Mid-Term Election Reactions

Despite some supportive Eurozone data on Wednesday, the Euro to South African Rand (EUR/ZAR) exchange rate has dragged lower by higher market demand for risky emerging market currencies since the results of the US Mid-Term Elections started coming in.

Since opening this week at the level of 16.27, EUR/ZAR has spent most of the week tumbling. On Wednesday morning, EUR/ZAR briefly touched a 2-month-low of 15.98 before trending nearer the level of 16.04 at the time of writing.

The primary cause of South African Rand (ZAR) strength in recent sessions has been a recovery in risk-sentiment.

Riskier, emerging market currencies like the Rand have also benefitted from the outcome of 2018’s US Mid-Term Elections.

Meanwhile, the Euro (EUR) avoided further losses due to some solid Eurozone data, but analysts are still concerned with the Eurozone’s economic slowdown.

Euro (EUR) Exchange Rate Strength Limited as Eurozone Economy Continues to Slow

While some of this week’s Eurozone data has beaten expectations and helped the Euro to avoid further losses, the South African Rand’s strength means it has easily benefitted.

Eurozone data continues to generally indicate that the Eurozone’s economic activity is slowing considerably towards the end of the year, which is limiting market demand for the shared currency.

Wednesday’s most influential Eurozone data included September’s retail sales results. The yearly figure beat expectations by coming in at 0.8%, while the previous figure was revised higher from 1.8% to 2.2%.

However, while the previous monthly figure was revised higher from -0.2% to 0.3, the figure only came in at 0.0% rather than the forecast 0.1%.

Germany’s industrial production stats from September beat forecasts too, but the nation’s October construction PMI came in at 49.8 – showing a contraction.

South African Rand (ZAR) Exchange Rate Rebounds in Emerging Market Rally

The results of the 2018 US Mid-Term Elections were generally unsurprising to investors, but did bolster risk-sentiment on Wednesday.

Investors bought riskier stocks, currencies and bonds following the news, as they indicated that US President Donald Trump’s ability to push new fiscal policy through Congress would become limited.

The US Democratic Party won control of the House of Congress, while the Republican Party firmed control of the Senate.

This meant political gridlock, which could slow the progress of new legislation.

According to Halen Bothma from ETM:

‘The Rand is leading the charge of the emerging market rally, as the Dollar is on back foot since the midterm election results started coming in,’

The South African Rand found a little extra support on Wednesday as the SACCI business confidence report improved from 93.3 to 95.8.

Euro to South African Rand (EUR/ZAR) Exchange Rate Strength Depends on Risk-Sentiment

Could risky emerging market currencies like the South African Rand continue to climb in the coming sessions? That depends on other factors that typically influence risk.

The US Mid-Term Elections have been positive for risk-sentiment, but the outcome was generally unsurprising so the movement is unlikely to persist for too long.

Instead, risk-sentiment will be influenced more by potential developments in global trade tensions, such as between the US and China.

Of course, the Eurozone still has its own trade concerns too. Thursday will see the publication of Germany’s September trade balance results, which could inspire further Euro weakness if they disappoint.

As well as potential shifts in risk-sentiment, upcoming South African production data could also influence the Euro to South African Rand (EUR/ZAR) exchange rate on Thursday.