AZA FX Week Ahead: Cedi weakest in year may fall further

AZA FX Week Ahead: Cedi to stabilise after Q3 weakness as Naira edges back from record low

The IMF’s record $650bn reserves distribution came into effect earlier this week, with the fund’s managing director Kristalina Georgieva calling on wealthy nations to divert some of their allocation to poorer countries that need greater economic support amid the Covid-19 pandemic, particularly in Africa—which has only been allocated $33bn.

Some 70% of the special drawing rights programme, which is designed to help countries bolster their FX reserves and instil confidence in the global economy, has been allocated to the 20 largest of the fund’s 190 member states. Just $21bn, or 3%, of the reserves will go to low-income countries. In June, the Group of Seven advanced economies endorsed a plan to reallocate $100bn of the fund’s reserves to poorer countries.

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.

IMF cash to help steady Naira

The Naira depreciated slightly on the unofficial market this week, trading at 521 to the dollar compared to 520 at last week’s close after the country’s foreign exchange reserves dropped by $63m to $33.5bn, its lowest level in six weeks amid ongoing liquidity constraints. Meantime, Nigeria is expected to receive $3.35bn this week from the IMF’s special drawing rights allocation. That cash injection is expected to bolster the country’s reserve levels, which should help boost liquidity and prop up the Naira in the coming days.

Rand boosted as risk sentiment improves

The Rand strengthened against the dollar this week, trading at 14.96 compared to 15.28 at last week’s close. Those gains came as data showed South Africa’s economy was 11% bigger in 2020 than previously estimated, with improved global risk sentiment also supporting the currency’s appreciation.

That backdrop helped offset poorer jobs numbers, with the country’s unemployment rate rising to 34.4% in the second quarter, up from 32.6% in the first quarter of the year and potentially threatening to derail the projected economic rebound. Improved risk appetite should, however, support the Rand at current levels over the coming week.

Non-oil export growth supports Egyptian Pound

The Pound was unchanged this week at 15.70 to the dollar, kept steady by inflows from agricultural exports and investments into the country. Egypt’s trade and industry minister Nevine Gamea this week said that non-oil exports increased to $17.7bn in the first seven months of the year, a 22% rise on the $14.6bn recorded last year. We expect the Pound to remain steady over the coming week with continued support from export and investment inflows.

IMF reserves allocation to bolster Shilling

The Shilling depreciated against the dollar, trading at 109.75 from 109.6 at last week’s close as month-end dollar demand from the manufacturing and energy sectors outweighed inflows from agricultural exports.

The IMF this week allocated $737.6m to Kenya from its special drawing rights programme to support the country’s efforts to battle the Covid-19 crisis, supplement its FX reserves and reduce its reliance on domestic and external borrowing. The country’s foreign exchange reserves are still adequate at $9.19bn, and the boost from the IMF’s cash injection should support the Shilling over the next seven days.

Uganda poised for month-end FX pressure

The Shilling weakened to 3532/3542 to the dollar from 3525/3535 at last week’s close as corporate activity picks up, creating demand for dollars from importers in the energy and manufacturing sectors. We expect the Shilling to remain under pressure in the week ahead as dollar demand increases as we approach the end of the month.

Tanzania’s export inflows firm up Shilling

The Shilling was stable in trading against the greenback this week at 2314/2324, supported by dollar inflows from commodities such as agricultural products and gold exports, which cushioned the appetite for dollars from manufacturers and small and medium-sized enterprises.

We expect inflows from agricultural exports, such as sesame, cotton and tobacco, to continue to meet dollar demand from importers, helping keep the Shilling steady over the next seven days.



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