Euro to South African Rand Exchange Rate Recovery Limited by Mixed Risk-Sentiment
Despite some solid Eurozone data and mixed demand for risky emerging market currencies like the South African Rand (ZAR), the Euro to South African Rand (EUR/ZAR) exchange rate has been trending lower since Tuesday.
Risk-aversion and trade jitters made it easy for EUR/ZAR to surge from 15.69 to 16.04 last week, but this week so far the pair has fluctuated within a tighter region.
EUR/ZAR hit a high of 16.16 on Tuesday, before tumbling and hitting a weekly low of 15.88 on Wednesday morning.
As well as slightly stronger support for risky emerging market currencies this week, investors have opted to sell EUR/ZAR from its highs – as Tuesday’s high was the pair’s best level since December 2017.
Due to key support levels keeping the Euro to South African Rand exchange rate away from its best levels, the pair’s potential for gains is limited – even despite stronger Euro (EUR) demand.
Euro (EUR) Exchange Rates Avoid Further Losses Thanks to Eurozone PMIs
Following weeks of concerns that the Eurozone economy was slowing quicker than expected from its strong 2017 growth rate, this week’s data has put some of those fears to rest.
Wednesday saw the publication of the Eurozone’s final June services and composite results. While France’s figures fell short of expectations, Germany’s beat projections and so did the Eurozone’s.
According to Markit Chief Economist Chris Williamson though, trade war uncertainties remain a considerable downside risk:
‘The upturn in the pace of economic growth and resurgent price pressures adds support to the ECB’s view that stimulus should be tapered later this year, but the details of the survey also justify the central bank’s cautious approach to policy.
In particular, a weakening in business optimism to the lowest for over one-and-a-half years reflects intensifying nervousness about the outlook for the economy, notably in manufacturing, as trade-war talk escalates’
Other economic uncertainties still weigh on the Eurozone outlook, such as the possibility of US trade protectionism leading to a full blown trade war.
The Euro’s performance against risky trade-correlated currencies like the South African Rand has been mixed. This is due to US trade jitters having a negative impact on both Euro trade and those trade-correlated currencies.
South African Rand (ZAR) Exchange Rate Strength Limited by Risk-Aversion
While South Africa’s domestic outlook has been decent lately, the South African Rand has been unable to really benefit due to the persistent uncertainties and jitters surrounding recent trade protectionism from the US.
US President Donald Trump has doubled down on protectionist rhetoric and there have been little signs that he will back away from his planned tariffs.
This has caused broad market concern that tariffs may have a negative impact on many economies across the globe, particularly those of emerging markets that rely on trade like South Africa.
The Rand has seen slightly better performance this week as trade tensions eased slightly, but they remain a constant concern and are likely to keep a cap on any potential for the Rand to advance.
Euro to South African Rand (EUR/ZAR) Forecast: Eurozone Data in Focus
The Euro to South African Rand (EUR/ZAR) exchange rate could see limited movement for the remainder of the week.
Solid Eurozone data will keep the Euro supported, but the South African Rand is unlikely to fall much further towards key support levels.
However, EUR/ZAR may do a better job at holding near its best levels if upcoming Eurozone data impresses, or if US trade jitters worsen further.
Thursday will see the publication of Germany’s May factory orders results, as well as German construction PMI and Eurozone retail PMI data from June.
Friday will round off the week with German industrial production and French trade data from May, as well as South Africa’s June foreign exchange reserves results.
The SA data is unlikely to be influential, so if there are any shifts in EUR/ZAR trade in the coming days it will be due to Eurozone data or developments in US trade tariff news.
