EUR/ZAR Outlook: Likely to decrease, as the rate is below its recent average and near recent lows amid pressure from South Africa's interest rate cuts.
Key drivers:
• Rate gap: The European Central Bank is maintaining current rates, while the South African Reserve Bank is expected to cut rates, widening the gap in interest rates between the two currencies.
• Risk/commodities: The South African rand has gained strength due to rising precious metal prices, which attracts investors and adds demand for the ZAR.
• One macro factor: South Africa's inflation is below the target band, supporting the case for interest rate cuts, which further weighs on the rand's relative strength.
Range: Expect the EUR/ZAR to drift within its recent range, testing recent lows as pressures from rates and inflation continue.
What could change it:
• Upside risk: A surprise decision by the ECB to raise interest rates could strengthen the euro against the rand.
• Downside risk: Continued strength in commodity prices could further attract investment into the rand, putting additional pressure on the euro.
