Euro to South African Rand Exchange Rate Leaps despite Signs of Weakening Eurozone Inflation
This morning’s South African growth data shocked investors and as a result the Euro to South Africa Rand (EUR/ZAR) exchange rate surged. It meant that the resilience the South African Rand (ZAR) had shown earlier in the week had largely faded.
Last week, some Euro (EUR) resilience and fresh global trade tensions made it easier for EUR/ZAR to advance from 16.15 to 16.30 throughout the week – though the pair was unable to hold the week’s 2019 high of 16.60.
However, EUR/ZAR may be within striking distance of those highs again now. After trending with a downside bias yesterday, fresh South African growth data has caused a Rand selloff and EUR/ZAR is trending more closely to the level of 16.45 at the time of writing.
Still, the Euro has been unable to really capitalise on the Rand’s weakness, as the latest Eurozone inflation data has kept investors concerned about the health of the Eurozone economy as well.
Euro (EUR) Exchange Rate Gains Limited as Eurozone Inflation Misses the Mark
Hopes for resilience in the Eurozone economic outlook are a little weaker after today, as concerns rose about sustaining the bloc’s inflation.
Eurozone inflation was expected to have slowed from 1.7% to 1.3% year-on-year, with the core figure expected to have slowed from 1.3% to 0.9%.
However, the results came in with lower than expected results of 1.2% and 0.8% respectively.
Analysts at TD Securities said that the figures may prove concerning for the European Central Bank (ECB):
‘These figures pose a real challenge to the ECB’s fairly optimistic March projections, and notably won’t be included in their forecasts released later this week.
It’s worth remembering that April’s figures were artificially inflated by Easter timing effects, so May’s data reflects the truer underlying price picture.’
The Eurozone’s April unemployment rate did improve more than expected however, from 7.7% to 7.6%.
These stats followed yesterday’s Eurozone manufacturing PMIs, which were weak as expected.
South African Rand (ZAR) Exchange Rates Plummet after Concerning Growth Report
The South African Rand had been fairly resilient in recent weeks despite rising US trade protectionism, as reaction to South Africa’s newly formed government was briefly positive, and bets for Federal Reserve interest rate cuts have risen.
However, the Rand saw a sudden and sharp selloff today, following the publication of South Africa’s key Q1 Gross Domestic Product (GDP) growth rate report.
South African growth was expected to have contracted at -1.7% quarter-on-quarter, and have slowed from 1.1% to 0.7% year-on-year.
As a result, the -3.2% quarter-on-quarter contraction was hugely shocking, and the yearly figure fell to a stagnant 0.0%.
Analysts were concerned with the data, and noted that it was the latest sign of how economic slowdown and trade tensions were causing global weakness. This was the primary cause of EUR/ZAR’s sharp gains today.
Euro to South African Rand (EUR/ZAR) Exchange Rate Investors Await Eurozone Data
With this week’s South African data disappointing, and Eurozone inflation showing signs of weakness and keeping pressure on any chances of hawkish from the European Central Bank (ECB), investors are now more anxiously anticipating the major Eurozone data due in the coming sessions.
Influential stats will be published through the end of the week.
Services and composite PMI figures, as well as April retail sales stats, will come in tomorrow, followed by growth and employment stats on Thursday. Friday will round off the week with German factory and trade data.
Of course, Thursday’s European Central Bank (ECB) policy decision could be the most influential event of the week for EUR/ZAR investors, especially if the bank has an unexpected reaction to any recent Eurozone data.
If the ECB shows more signs of dovishness due to weakness in Eurozone inflation, concerns of further quantitative easing (QE) of some kind from the bank could rise.
The South African Rand could be influenced by US trade tensions, but amid a lack of major South African data due in the coming days the Euro to South African Rand (EUR/ZAR) exchange rate is most likely to be driven by Eurozone news.