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South African Economic Uncertainty Boosts Euro South African Rand Exchange Rate

  • Euro South African Rand Hits 14.62 – Best levels in over two weeks
  • South Africa’s Economic Uncertainty in Focus – SARB independence could be in question
  • EUR Forecast: Eurozone PMIs Due Friday – Indication of Eurozone’s economic strength
  • ZAR Forecast: Political Developments in Focus – Risky Rand could remain weak

Euro South African Rand Slips on Thursday

The Euro South African Rand exchange rate had slipped slightly from its best weekly levels by Thursday afternoon, but the pair remained well above the week’s opening levels.

Demand for the Rand improved slightly on Thursday as South Africa’s highest court ruled that a secret no-confidence vote against SA President Jacob Zuma could be allowed.

If another move is made against the controversial SA President, the South African Rand would see an increase in demand.

However, as Zuma has survived many no-confidence votes in the past, investors are hesitant to buy up the Rand. As a result, the currency remains jittery due to this week’s South African Reserve Bank (SARB) news.

[Published 14:15 BST 21/06/2017]

The Euro South African Rand exchange rate has remained strong this week as the Eurozone’s political and economic outlooks steadily improve while South Africa has seen another controversy emerge due to unexpected criticism of the South African Reserve Bank (SARB).

EUR ZAR opened this week at the level of 14.34 and has advanced since then. On Tuesday, the pair hit a two-week-high of 14.62 and has trended close to these highs since.

Euro (EUR) Outlook Sturdy as French President Looks to Strengthen Eurozone

While there hasn’t been any influential Eurozone data published so far this week, the Euro outlook remains strong as the economy gradually improves and the political outlook stabilises.

New French President Emmanuel Macron saw his ‘en Marche!’ party perform well in French legislative elections this month, improving Macron’s ability to push through his ambitious plans on economic and labour reform in France.

Macron has also indicated he wishes to help to reform and strengthen the Eurozone and its shared currency. This has improved market demand for the Euro.

He argued strongly during his campaign that the Eurozone needed a finance minister and a budget. This week, German Chancellor Angela Merkel indicated she may be willing to support these ideas too, under the right circumstances.

This was significant as Germany has typically been hesitant to support the idea of a common Eurozone budget.

Since Macron won the French election, investors have been excited about the potential of stronger diplomatic ties between France and Germany as two of the Eurozone’s biggest economies.

However, the Euro has failed to capitalise on Rand weakness. A lack of fresh supportive Eurozone data as well as concerns that Macron still faces considerable obstacles in passing his labour policies.

South African Rand (ZAR) Weak on South African Reserve Bank (SARB) Uncertainty

South African Rand demand has slumped over the last week following shocking comments on the South African Reserve Bank (SARB) from the nation’s corruption watchdog.

Busisiwe Mkhwebane, a South African advocate and South Africa’s current Public Prosecutor, published a report on the Absa bailout. In the final pages of the report, Mkhwebane appeared to criticise the current constitutional mandate of the SARB.

She suggested the SARB change its mandate and replace ‘to protect the value of the currency’ with a main objective to promote ‘balanced and sustainable economic growth’ as well as protecting the socio-economic wellbeing of citizens.

The report has caused great controversy, with critics saying it was beyond Mkhwebane’s own mandate to make such remarks. Many have suggested it could threaten the South African Reserve Bank’s independence.

In recent months, SARB independence has been complimented by major ratings agencies as one of the best institutional strengths of South Africa. As a result, investors have sold off the South African Rand in response to this latest developments.

Barclays Africa recommended against the proposed amendments on Wednesday, stating they posed a risk to South Africa’s financial system.

In attempt to calm markets, South African Finance Minister Malusi Gigaba stated that South Africa’s government must not weaken the Reserve Bank’s independence. However, the Rand remained volatile as Gigaba remained undecided on whether he will oppose the proposed amendments completely.

News that South African inflation beat expectations in May did little to boost the Rand amid this latest controversy.

Euro South African Rand Forecast: Eurozone PMIs Due Friday

After a lack of influential Eurozone data for most of the week, Euro traders may react to data due for publication on Thursday and Friday.

Thursday will see the publication of the Eurozone’s consumer confidence survey for June, as well as French business confidence for June and the European Central Bank’s (ECB) latest economic bulletin.

Even more influential data will be published on Friday. Final Q1 Gross Domestic Product (GDP) results will come in from France and The Netherlands, and Markit’s preliminary June PMIs will be published too.

As always, investors will put particular focus on Germany’s manufacturing PMI and the Eurozone’s overall results. Analysts expect PMIs have slowed slightly following their strong performances in April and May, but a worse-than-expected drop would lead to a weaker Euro.

The Euro is likely to drive EUR ZAR movement for the rest of this week, but political or economic developments in South Africa could influence movement too.

EUR ZAR Interbank Rate

At the time of writing this article, the Euro South African Rand exchange rate trended in the region of 14.52. The ZAR EUR exchange rate traded at around 0.0688.