African currencies weekly insight (Aza)

In this weekly column on African currencies, experts from AZA, the largest non-bank currency broker in Africa, with a transaction volume of more than $ 1 billion per year, analyze the evolution of currency fluctuations on the continent.


 

 

Chad debt relief plan hinges on private creditor talks

 

The IMF this week called on private creditors to step up debt talks with Chad as part of a restructuring process that will unlock funding the country urgently needs as its economy staggers from the combined shocks of Covid-19, lower oil prices, climate change and terrorist attacks. Government creditors have already reached an agreement with Chad after it became the first country to ask for a debt overhaul under a new G20 common framework. Unlocking those funds is vital given that Chad’s financial strains have forced the country to cut critical social and development spending, which could have serious social and security implications if not reversed, the IMF said.

Michael Nderitu
Chief Risk Officer, AZA.


The Naira hit a fresh record low against the dollar this week, depreciating to 535 on the unofficial market from 530 at last week’s close as demand for the greenback from importers continues to bump up against scarce market liquidity, which has been exacerbated by the Central Bank of Nigeria banning FX sales to the country’s bureau de change outlets. Despite the current weakness, the central bank on Tuesday said it still expects the country’s unofficial and official rates to converge. The Naira was trading at 411.30 to the dollar on the NAFEX window this week. We expect the currency pressure to persist in the coming days as demand for forex continues to outweigh supply.


Cedi weakest in year may fall further

The Cedi depreciated further this week, sliding to just under 6.04 to the dollar from 6.02 at last Friday’s close, its weakest level against the dollar in 12 months. A move by the Bank of Ghana to increase the amount of dollars on offer in its forward auction to $75m was not enough to arrest the Cedi’s decline, which has been under pressure as a result of increased demand for the greenback amid a broader uptick in business activity as the economy recovers from the Covid-19 pandemic. We expect that backdrop to sustain the pressure on the Cedi over the next seven days.


The Rand driven by the economic recovery

The Rand appreciated against the dollar this week, trading at 14.16 from 14.31 at the close of last week, after South Africa’s statistics agency showed the economy The country grew 1.2% in the second quarter, compared to 1% in the first three months of the year. This expansion has been supported by activities in the transport and communications sectors, as well as in agriculture. “Against this backdrop, we expect the Rand to maintain current levels in the near term,” said Aza.


Pound weakens as Egypt’s Covid cases increase
The Pound weakened marginally against the dollar this week, slipping to 15.72 from 15.70 at last week’s close. Egypt’s health ministry this week reported an increase in Covid-19 cases, warning of a potential hike in infections over the next two months. Also this week, Finance Minister Mohamed Maait said Egypt needs to relax regulations and simplify doing business in the country in order to spur private sector investment and boost growth to support the economy’s recovery from the coronavirus pandemic. We expect the Pound to maintain current levels over the coming week.

Murega Mungai
Trading Desk Manager, AZA


Bond inflows to boost Kenyan Shilling 

The Shilling depreciated against the dollar this week, edging lower to 110.11 from 109.99 at last week’s close as Kenya’s current account deficit widened to 5.4% of GDP in the 12 months to July compared to 4.9% a year earlier, according to provisional data from Kenya’s central bank. Meantime, the central bank closed an offering of 75bn Shillings of infrastructure bonds this week, which tend to be popular with investors given that returns are tax exempt. We expect inflows from the infrastructure bonds to give the Shilling a reprieve from the recent pressure over the coming week.


Dollar demand to keep pressure on Ugandan Shilling
The Shilling weakened against the dollar, trading at 3538 compared to 3528 at last week’s close as the partial lifting of Uganda’s Covid-19 lockdown spurred a resurgence in business activity that has increased importer demand for the greenback. We expect that dynamic to maintain pressure on the Shilling over the next seven days.


IMF emergency cash to keep Tanzanian Shilling stable

The Shilling was little changed against the dollar, trading at 2318, in line with last Friday’s close. The currency was supported by the IMF’s approval this week of $567m in emergency funding to help ease the impact of the Covid-19 pandemic on Tanzania’s economy. The funds will also be used to boost the country’s healthcare system and address its urgent balance of payments needs, the IMF said. We expect the Shilling to remain stable over the coming week, as the IMF’s financing support is balanced by demand for dollars for imports of consumer and capital goods including transport equipment, building and construction, machinery and oil.

 

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