FX Week Ahead: Naira to hold firm on higher oil prices as Ghana focuses on export capacity building 

FX Week Ahead: Naira to hold firm on higher oil prices as Ghana focuses on export capacity building 
Nigerian naira banknotes are seen in this picture illustration, September 10, 2018. REUTERS/Afolabi Sotunde/File Photo

Naira to hold firm on higher oil prices
The Naira strengthened against the dollar on the unofficial market this week, appreciating to 560 from 563.5 at last week’s close amid rising crude oil prices and reduced demand for the greenback. Following the launch of the e-Naira in late October, the central bank said Nigerians have completed NGN46.3m of transactions using digital currency.

Foreign exchange reserves fell for a second week, slipping to $41.6bn from $41.7bn seven days earlier. Given buoyant oil prices and the easing of dollar demand, we expect the Naira to hold steady in the coming week.

Ghana focuses on export capacity building 
The Cedi depreciated against the dollar this week, trading at 6.107 compared to 6.099 at last week’s close. Ghana’s Trade and Industry Minister Alan Kyerematen said the country needs to increase its export capacity through industrialisation to create jobs.

Against that backdrop, Tullow Ghana took a developmental step by acquiring the first Ghanaian flagged marine vessel in a bid to boost capacity in the offshore oil and gas industry, reducing dependence on imports. We anticipate a more positive mood in the FX market, with pressure on the Cedi likely to ease in the coming days.

Mali faces sanctions as election plans stall
West Africa’s political and economic bloc ECOWAS has imposed travel bans and asset freezes on Mali’s transitional leaders after they told the regional alliance they would not hold presidential and legislative elections in February as previously promised.

The current interim government took power after the military removed President Ibrahim Boubacar Keita in August last year, giving assurances to ECOWAS that they would oversee an 18-month transition back to democracy.

A combination of the military coup, weak private investment and a fall in global commodity demand caused by the Covid-19 pandemic saw Mali’s economy contract by 2% in 2020, having grown 5.1% a year earlier. As in Sudan and Guinea, on-going disruption caused by military takeovers threatens to derail post-Covid economic recovery.

Further Rand weakness hinges on inflation data
The Rand depreciated against the dollar, weakening to 15.36 from 15.05 at last week’s close—edging towards its 2021 low of 15.50 seen back in early January. Investors are pricing in a US rate hike in 2022 to tame rising inflation, which has helped boost the greenback.

South Africa’s electricity woes continue, with planned power cuts expected to hurt the local economy. The outlook for the Rand will likely depend on the outcome of South Africa’s inflation data next week: if the rate comes in higher than expected (forecast 5.2%), then the currency could come under further pressure.

Chinese investment to support Egyptian Pound
The Pound held firm against the dollar again, trading at 15.66/15.76 even as inflation edged higher. Egypt’s central bank said inflation rose to 5.2% in October from 4.8% in September.

Meantime, the country signed an economic and technical cooperation agreement with China this week, which will include Chinese grants to finance development projects in priority sectors such as health, agriculture, education and infrastructure. We expect investment inflows to maintain the support for the Pound over the near term.

Record low Kenyan Shilling should stabilise
The Shilling slumped to a record low against the dollar this week, trading at 111.70/111.90 as corporate demand for the greenback continues to outstrip demand. Demand for dollars is being driven by energy importers amid continued higher fuel costs, and by manufacturers more generally.

This increased dollar demand is unmatched by the slower inflows from tourism and agricultural exports, creating more pressure on the Shilling. In the face of that pressure, FX reserves dropped to $9.07bn from $9.18bn the previous week, though they remain sufficient for 5.54 months of import cover. Overall, we expect the Shilling will stabilise over the coming week with the support from still adequate forex reserves.

Ugandan Shilling strengthening poised to continue
The Shilling gained further ground against the dollar this week, strengthening to 3530 from 3555 at last week’s close. That has been driven by reduced demand for FX coupled with expected inflows from remittances and cross-border investments, notably from the MTN Uganda initial public offering which is open to Kenyan investors and is due to close later this month.

We expect the Shilling to continue appreciating to the psychologically important 3500 level, with support from the Bank of Uganda mopping up excess dollars.

Export demand to prop up Tanzanian Shilling
The Shilling was stable this week, trading at 2297/2307 as dollar supply matched demand, boosted by inflows from gold and agricultural exports.

Tanzania’s mining sector is attracting increased interest from foreign investors, with multinational companies in South Korea, Dubai, France and India signalling their intention to invest in the sector during the ongoing Expo 2020 Dubai. Given strong export demand, we expect to see a stable Shilling in the coming week.

Note to journalists: please feel free to quote from this briefing for news reports and let us know any requests for further comment or interviews via the contact details at the end, or by reply to this email. AZA is Africa’s largest non-bank currency broker by trading volume at over $1 billion annually. See https://www.azafinance.com 


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