Major South African Rand-based currencies namely the EUR/ZAR and the GBP/ZAR have maintained their bearish momentum contrary to expectations as business confidence plummets in South Africa.
The EUR/ZAR exchange rate demonstrated a strong bearish performance on Thursday and the same was also the case for the GBP/ZAR. The EUR/ZAR seemed to hit a ceiling near the 19.9474 resistance levels and was unable to close into the 20.0059 resistance level as the bears overpowered the bulls. The downward momentum allowed the price to break through the 19.7032, as well as the 19.6448 key support levels. It even managed to break through the 19.5237 support level before the price started to push back up.
The bearish performance indicates that the South African Rand has been gaining against the Euro and also against the Pound Sterling. This is contrary to expectations that the Rand would grow weaker especially against the two European currencies on account of the declining investor confidence in South Africa. South Africa’s Chamber of Commerce and Industry (SACCI) recently announced that its investor sentiment index dropped to 89.9 from 92.7 last month. This decline was largely due to the impact of the coronavirus pandemic on the South African economy.
It is clear that the coronavirus has dampened the business mood in South Africa and even expedited an economic slowdown. The economy is expected to slow down by around 4 percent this year. Meanwhile, the South African Rand has managed to remain strong and even enjoy some gains against the Euro and the Pound Sterling this week. The ZAR owes its rally to the expectations that OPEC will reach an agreement with its allies to slash global oil output on account of the historic decline in oil prices last week.
The ZAR may have also benefited from the fact that European finance ministers failed to reach a middle ground over the financial measures they should take to counter the negative financial impact of the coronavirus. This has caused significant weakness in both the GBP and the Euro.