FX Week Ahead: First-rate hike in six years fails to steady Cedi as Naira rally resisted at 560 handle

The Cedi weakened against the dollar this week to 6.146 from 6.126 at last week’s close as inflation surged to 11% in October—a 15 month high.

The Bank of Ghana helped prevent a steeper decline in the Cedi by unexpectedly lifting its benchmark interest rate for the first time in six years, ratcheting it 100bps higher to 14.5% in a bid to make investments more attractive and mop up excess funds in circulation.

We expect further pressure on the Cedi in the coming weeks before the central bank’s tighter monetary policy transmits into the economy.

US seeks to renew economic influence in Africa
The US has pledged to rebuild its relations with Africa as a counterpoint to China’s growing presence on the continent. Speaking in Nigeria at the end of last week, US Secretary of State Antony Blinken said the US wanted to forge a stronger partnership with African countries, treating nations as equals rather than ‘junior partners’.

President Joe Biden also plans to host a US-Africa summit to bolster relationships. While details are scant, we are watching for deepening ties with the US broadening access to capital to spur growth and improved two-way trade prospects.

Naira rally resisted at 560 handle
The Naira’s recent appreciation on the unofficial market came to an abrupt end this week as the currency slid back to 560 to the dollar from 550 at last week’s close amid renewed demand for the greenback. Market participants suggested that was driven by dollar buyers taking advantage of the previously stronger Naira.

Nigeria’s central bank this week voted to keep its interest rate on hold at 11.5% for the 14th consecutive month. Governor Godwin Emefielesaid previous decisions to hold the rate steady had aided the economy’s recovery and underscored the need to maintain the current course. Given the central bank’s sustained FX interventions in the official market, we expect the 560 handle to pose a strong enough resistance until demand starts to ease again.

Fed hike hints keep Rand on back foot
The Rand weakened against the dollar this week to 15.84 from 15.74 at last week’s close as global risk sentiment faltered and investors flocked to safer assets after the US Federal Reserve said it could raise rates sooner than expected to cool inflation.

There was little respite offered by the South African Reserve Bank’s decision to hike its main interest rate by 25bps to 3.75% last week, in line with market expectations. It also indicated any further tightening would be gradual. We project sustained pressure on the Rand in the coming days as Fed hike fears linger.

Green and SDG funds keep Egypt Pound firm 
The Pound was unchanged against the dollar, trading at 15.68/15.76. Egypt expects to receive a $3bn syndicated loan, which was arranged by Emirates NBD and First Abu Dhabi Bank to help finance sustainable green projects in the country.

The Asian Infrastructure Investment Bank this week approved financing for Egypt worth $360m to help support its sustainable development goals and to aid its recovery from the Covid-19 pandemic. We expect a stable Pound over the coming week, underpinned by investor inflows.

No respite for record low Kenyan Shilling 
The Shilling slumped to a fresh low against the dollar this week, trading at 112.50/113.20 from 111.90/112.10 at last week’s close due to increased import activities from the manufacturing and general goods sectors, which outpaced FX inflows.

The country’s FX reserves dropped by $221m to $8.9bn as the central bank attempted to avoid a sharper fall. We expect the Shilling to remain under pressure over the coming week.

Coffee exports bolster Ugandan Shilling
The Shilling strengthened against the greenback this week to 3565/3575 from 3570/3580 at last week’s close as dollar supply outweighed corporate demand.

Uganda’s Minister of Trade Francis Mwebesa met with the EU’s Head of Cooperation, Caroline Adriaensen, this week to discuss building a sustainable and competitive industrial sector to boost economic growth in the East African nation. We expect the Shilling to remain stable this week with support from agricultural exports, namely coffee, sales of which hit a record high in August.

Tanzania reopens 20-year bond, courts investment
The Shilling was unchanged against the dollar, trading at 2294/2310. The Bank of Tanzania this week reopened its 20-year government bond as it seeks to increase market liquidity and lower its borrowing costs.

A meeting between the UK’s trade envoy to Tanzania, John Woodcock, and the CEO of the East African Business Council, John Bosco Kalisa, underscored efforts by Tanzania to ease trade barriers, with Woodcock suggesting a number of UK companies are interested in investing in the country.

We expect a stable Shilling over the coming days as demand for dollars from the manufacturing and energy sectors is matched by inflows from investors and agricultural exports.

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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