The Euro South African Rand (EUR ZAR) exchange rate neared a new monthly high yesterday as European Central Bank President Mario Draghi suggested that the Eurozone had fended off the risks of deflation.
The comments followed the latest ECB policy meeting yesterday afternoon, in which unsurprisingly the Bank voted to leave its monetary policy unchanged.
While some economists were left disappointed that the Bank did not reign in its aggressive stimulus programme, in light of a string of upbeat data from the Eurozone, others chose instead to focus on the uncharacteristically hawkish comments from Draghi.
In what was seen as the first step in tightening the ECB’s monetary policy, Draghi hailed the end of deflation risks in the Eurozone as he omitted his usual reference to using all available weapons in his economic arsenal, prompting the Euro to soar.
Cathal Kennedy, European economist at RBC Europe said;
‘The message was very subtle, it was just a nod that lower rates have been taken off the table. But it has been taken as a signal that the era of extraordinary stimulus is coming to an end.’
While the bank is still a long way off the tapering of its quantitative easing programme, with the ECB President confirming that it would continue to run until the end of the year at least, it was the first sign that the Bank may look to bring an end to its crisis-era policy measures.
However EUR ZAR plateaued this morning following the release of Germany’s latest Trade Balance data.
Figures show that German imports rapidly rose at the start of the year, leading Germany’s trade surplus to shrink from €18.7bn to a twelve-month low of €14.8bn in January.
However with exports also showing strong growth climbing 2.7%, analysts are unlikely to be too worried about the largest economy in the Eurozone, although the government may face more ire from President Donald Trump who recently accused Germany of manipulating the Euro in order to gain a competitive advantages over its peers.
Meanwhile the South African Rand suffered during Thursday’s session following a sharp decline in global commodity prices.
The emerging economy, which relies heavily upon exports of various precious and base metals felt the sting of a sudden downturn in the commodity markets.
The drop comes as the US prepares to raise interest rates later this month, with the strengthening US Dollar –which most commodities are traded in- and falling demand in China causing prices to tumble after months of speculative gains.
Analysts predict that commodity prices will fall even further in 2017 as the market corrects itself after prices reached unstainable levels at the start of the year.
Looking ahead to next week the Euro may see further gains against the South African Rand as economists forecast that Germany’s latest ZEW Economic Sentiment survey will see investor confidence rise from 10.4 to 12 for the month of March, following a slew of upbeat data from the Eurozone since the start of the year.
However the single currency could face some pressure in the form of the Dutch elections in the middle of the week as observers wait to see how well the Far-right candidate Geert Wilders fares, in what will be the first real test of populism on the continent.
Meanwhile the Rand may rally on Wednesday with the release of January’s domestic Manufacturing Production figures, with analysts predicting that activity will have rebounded after a slight slump at the end of last year.
Current Interbank Exchange Rates
At the time of writing the EUR ZAR exchange rate was trending around 14.10 and the ZAR EUR exchange rate was trending around 0.07.