Euro to South African Rand Exchange Rate Regains Half of Last Week’s Losses
The Euro (EUR) continued to see steady support as Eurozone inflation met forecasts on Monday. This helped the Euro to South African Rand (EUR/ZAR) exchange rate to take advantage of market aversion to risky emerging market assets.
Last week, emerging market currencies like the South African Rand (ZAR) rebounded and saw a slight recovery rally. This caused EUR/ZAR to slide from 17.64 to 17.40 throughout the week.
Still, EUR/ZAR was able to hold away from last week’s lowest level of 17.08, as emerging market demand was limited due to persistent concerns about US trade protectionism and the possibility of fresh trade tension between the US and China.
As trade jitters persisted, the Euro was able to recover slightly against the South African Rand when markets opened on Monday.
The Euro has largely benefitted from weakness in rivals, but some solid Eurozone data and last week’s European Central Bank (ECB) news helped too.
Euro (EUR) Exchange Rates Firm as Eurozone Inflation Meets Expectations
Following the European Central Bank’s (ECB) decision to leave its Eurozone inflation forecasts untouched last week, Monday’s Eurozone inflation results gave investors more reason to be confident in the bank’s inflation outlook.
Concerns that Eurozone price pressures would be dampened by US-EU trade tensions lightened slightly, as Eurozone inflation was confirmed to have only slowed slightly as projected in August.
The Eurozone’s yearly inflation rate slipped from 2.1% to 2.0%, while the core inflation rate slid from 1.1% to 1.0%. The month-on-month inflation rate improved from -0.3% to 0.2% as forecast.
According to Anders Svendsen, Research Analyst at Nordea Markets:
‘Upward momentum in underlying inflation is fading. Super-core inflation was 1.1% y/y in August (Nordea measure) when excluding package holidays, down from 1.2% y/y in July, and in roughly the same in % 3m/3m.
Country details showed that Germany is pulling lower due mostly to falling education prices, while France is still seeing stronger momentum even if super-core inflation remains low in % y/y terms.’
South African Rand (ZAR) Exchange Rates Slide on US-China Trade Jitters
Concerns that both the US and China could be about to ramp up trade action against one another made investors hesitant to take risks on buying emerging market currencies like the South African Rand on Monday.
Emerging market currencies have seen weeks of poor performance due to expectations that US interest rates will keep rising, as well as concerns about how US trade protectionism could impact global growth.
A brief rise in risk-sentiment last week caused the South African Rand and other emerging market currencies to see a brief recovery rally. This was partially due to hopes that the US and China could begin a new round of trade negotiations.
However, when markets opened this week investors once again became anxious about reports suggesting that both the US and China are preparing further potential trade tariffs and other actions.
US President Donald Trump is expected to announce import tariffs on around $200b of Chinese goods this week and could do so as soon as today.
This made investors hesitant to take risks and left risky emerging market currencies like the South African Rand unappealing on Monday.
Euro to South African Rand (EUR/ZAR) Outlook Could be influenced by SARB Decision
Further developments from Central Banks could inspire movement in the Euro to South African Rand (EUR/ZAR) exchange rate in the coming sessions, and some influential data will also be published throughout the week.
Tuesday will see the publication of South Africa’s Q3 consumer confidence report, and European Central Bank (ECB) President Mario Draghi will hold a speech.
If Draghi makes any surprising comments about the Eurozone monetary policy outlook, the Euro could be influenced. Eurozone consumer confidence on Thursday and PMI projections on Friday could prove influential too.
South Africa’s data will be even more influential towards the end of the week, with August inflation figures due on Wednesday and the South African Reserve Bank’s (SARB) September policy decision on Thursday.
Investors anticipate the SARB’s tone regarding the possibility of South Africa’s economy being impacted by US trade protectionism, so this could be the most influential news this week for the Rand.
Of course, any further changes in risk-sentiment or US trade protectionism could also influence the Euro to South African Rand (EUR/ZAR) exchange rate in the coming sessions.