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Is A Rising Euro Good News For The South African Rand?

On March 5, I wrote an article arguing that on a holistic basis, the fundamentals of the South African rand do not look overly promising. With low GDP prospects, sluggish exports, and an ongoing power crisis, the South African rand had continued to depreciate against the US dollar. However, the situation seems to have suddenly reversed, with the ZAR appreciating significantly against the USD in recent weeks:

In my opinion, the recent strength in the South African rand is strongly following that of the euro. We can see that in early March, the EUR also started to strengthen significantly against the USD.

With Europe being one of South Africa's largest trading partners, it makes sense that the rand would follow the euro's lead. An upturn in the euro currency improves export prospects for South Africa, which appears to have had the knock-on effect of an appreciating rand. In this regard, the big question is - will euro appreciation simply be temporary or does this mark the beginning of a longer-term trend? Firstly, it is important to understand the main reason behind the rise - while the Federal Reserve did not rule out a rate hike in April on 18 March, a signaling of weaker than expected U.S. growth by Janet Yellen gave concern that the tightening policy will be less aggressive than anticipated - contributing to euro strength. Read more