AZA Finance FX Week Ahead: Import demand likely to weigh on Cedi as year end approaches

Global trade needs more supply diversity, not less

Africa’s first pandemic-era default edges towards IMF deal
Zambian authorities agreed terms with the IMF on a $1.4bn bailout to help restructure the country’s external debt following its default last year.

The three-year deal—which still needs to be approved by the IMF’s board—comes as part of the new government’s economic reform agenda, spearheaded by recently elected President Hakainde Hichilema.

Michael Nderitu
Head of Trading, AZA

Zambia is trying to resuscitate relationships with multilateral lenders as well as improve the country’s fiscal position, which has weakened under previous regimes. The announcement helped the Kwacha strengthen against the dollar, trading at 17.31 from 17.83 at last Friday’s close.

Naira set for festive gain on remittance inflows
The Naira weakened against the dollar this week on the unofficial market amid continued demand for the greenback, trading at 567 from 565 at last week’s close.

Nigeria’s FX reserves showed another week-on-week decline to $40.97bn, a drop of around $183m, highlighting the central bank’s continued intervention on the official market. The government this week condemned the UK’s decision to impose travel bans on a number of African countries including Nigeria.

The ban has been labelled discriminatory given the same punitive measures were not applied to European countries where the Omicron Covid-19 variant was also found. The Naira is likely to regain lost ground in the coming weeks on the back of increased remittances during the festive season and a slowdown in business imports.

Murega Mungai
Trading Desk Manager, AZA

Import demand likely to weigh on Cedi as year end approaches
The Cedi remained under pressure over the past week, sliding to 6.187 to the dollar from 6.16 at last Friday’s close.

Ghana and the Cote d’Ivoire met this week to further formalise the Ivory Coast Ghana Cocoa Initiative, which is aimed at boosting cocoa farmers’ income. The two countries together account for 65% of global cocoa supply.

The agreement is likely to drive more exports and contribute towards a greater share of Ghana’s external FX reserves. However, due to increased demand for imports as the year draws to a close, we expect to see the Cedi come under further pressure in coming days.

Rand in recovery on Omicron outlook risks Fed reversal
The Rand appreciated against the dollar this week, strengthening to 15.70 from 16.08 at last Friday’s close after early research suggested the Omicron Covid-19 variant may be less severe than previous strains.

Markets were also buoyed by news that a three-shot course of the Pfizer and BioNTech vaccine is potentially effective against the new strain, according to a laboratory test.

However, more data is needed to better understand the threat of the Omicron variant, and with the prospect of the US Federal Reserve tightening monetary policy faster, we expect to see some pressure on the Rand in the near term.

Egyptian Pound steady on economic momentum
The Pound was unchanged against the dollar this week, trading at 15.71 to the dollar. The IMF said Egypt is slated to become the second largest Arab and African economy next year, behind Saudi Arabia and Nigeria respectively, driven by an 18.6% increase in total revenues and a decline in the country’s fiscal deficit to 6% of GDP from 7% this year.

Egypt’s central bank said external debt increased to $137.9bn in June from $123.5bn a year earlier due to about $12.2bn of new loans and $2.2bn of foreign exchange losses. Against this backdrop, we project sustained levels.

Terry Karanja
Treasury Associate, AZA

Kenyan Shilling heads for new lows despite intervention
The Shilling weakened again this week, declining to 112.85 from 112.69 at last week’s close as dollar demand from the manufacturing sector and general goods importers remained elevated.

The latest fall came even as Kenya’s central bank intervened by selling an unspecified amount of dollars into the market. We expect sustained pressure on the Shilling in the weeks ahead as retail and wholesale dollar purchasers rush to meet their year-end obligations.

Year-end dollar demand to weigh on Ugandan Shilling 
The Shilling weakened slightly against the dollar this week, declining to 3569.03 from 3566.86 at last week’s close due to a spike in appetite from merchandise importers for hard currency. While inflows from diaspora remittances helped offset further depreciation this week, we expect the Shilling to come under sustained pressure as dollar demand increases from businesses towards year end.

Gold exports fuel strong year for Tanzanian Shilling
The Shilling was little changed against the dollar this week, trading at around 2302. Tanzania’s currency has been one of the best performing in East Africa this year, boosted by steady inflows from exports and funds from development partners. Gold in particular has helped support the Shilling, with the country earning $2.9bn from such exports in the 12-months to August, up from $2.7bn a year earlier. We expect the Shilling to remain steady as we head towards year end, with inflows matching dollar demand.

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 

Issued by AZA. This Newsletter is produced as a service to our clients. It is prepared by our dealing professionals and is based on their understanding and interpretation of market events. AZA cannot be held responsible for any losses of whatever nature sustained as a result of action taken based on comments contained in this publication.

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Gavin Serkin
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