The Euro to South African Rand (EUR/ZAR) exchange rate strengthened to its best level in a week on Monday after HSBC became the latest firm to cut its economic growth forecast for the African nation.
The Euro to South African Rand (EUR/ZAR) exchange rate hit a session high of 13.693
Earlier in the session, the South African currency fell because of data released in China, which showed that imports into the world’s second largest economy fell sharply in the first month of this year.
The trade figures from South Africa’s major export destination showed that imports plummeted by 19.9%, a fourth straight decline. The disappointing data added to signs that the Chinese economy is continuing to weaken.
HSBC Cuts Growth Forecasts
As the session progressed, the Rand was weakened further by news that HSBC became the latest firm to cut South Africa’s economic growth forecasts. It cited the nation’s unreliable energy supply and disruptions caused by workers strikes as the main cause for the economy’s sluggish growth.
The bank revised down its growth forecast for 2015 from 2% to 1.6% for this year and to 1.9% from 2.2% for 2016.
‘Just over a month into the year, we have cut our growth forecasts, as it becomes apparent that the country faces a deepening energy crisis. The combination of lower consumer inflation and flagging growth would see the Reserve Bank leave the repo interest rate on hold at 5.75% throughout 2015. In an economy where growth and job creation are the economic imperatives, the deteriorating outlook suggests little progress will be made towards addressing the 25% unemployment rate, elevated poverty and high inequality,’ said HSBC economist David Faulkner.
The growth forecast cut follows a similar move by the Reserve Bank, which revised down its growth forecast for 2015 from 2.5% to 2.2%. For 2016, it now expects the South African economy to fall from 2.9% to 2.4%.
EUR/ZAR Exchange Rate Forecast To Fall
The South African Rand is forecast to weaken further against the Euro and other peers on Tuesday as economists are expecting that the latest South African unemployment data will show that the jobless rate will rise from 25.4% to 25.7%.
Manufacturing Production data is also expected to show that production improved in December.
The Euro meanwhile is likely to remain under pressure from concerns over the political situation in Greece and worries over the war in Ukraine. Production data out of France and Italy however could disappoint and in turn restrain the single currency.