AZA Finance FX Week Ahead: Ecowas sanctions underscore risk after coup uptick


Ecowas sanctions underscore risk after coup uptick
West Africa’s economic bloc Ecowas has imposed sanctions on Mali after its military ruler Assimi Goita—who seized power last May in the country’s second coup in nine months—said he would hold elections in 2025 instead of this year as previously promised.

Michael Nderitu
Head of Trading, AZA

The 15-member bloc froze Malian assets at the region’s central bank and at banks in member states, prohibited non-essential financial transactions and closed land borders with the country.

Mali’s coup was one of four in Africa last year—up from one a year earlier—underscoring persistant political and financial risks on the continent.

Murega Mungai
Trading Desk Manager, AZA

Naira buoyed by upgraded growth and reserves
The Naira held relatively firm against the dollar this week, appreciating slightly to 570 compared to 571 at last week’s close.

The World Bank this week said Nigeria’s economy is expected to grow by 2.5% this year, up from the previous estimate of 2.4%, driven by higher oil prices.

Adding to a more upbeat mood, Nigeria’s FX reserves arrested a 10-week decline, rising to $40.5bn, an increase of about $12m, according to the central bank’s 30-day moving average.

Also this week, Asiwaju Bola Tinubu, the former Lagos State governor and national leader of the All Progressives Congress party, declared his intention to contest the presidency in next year’s election.

We expect the exchange rate to remain firm in the near term given the support of higher reserve levels.

Inflation worries to weigh on Cedi
The Cedi was little changed this week against the dollar, hovering around the 6.18 level. That was despite elevated demand for the greenback, with Ghana’s central bank receiving $235m of bids in its first forward FX auction of the year for the $75m on offer.

The country also saw inflation hit a five-year high in December, rising to 12.6% from 12.2% in November.

We expect the Cedi to come under renewed pressure over the coming week as inflation concerns persist.

Rate rise bets boost Rand
The Rand gained against the dollar this week, strengthening to 15.35 from 15.58 at last week’s close, supported by inflows from foreign investors who are betting on the South African Reserve Bank lifting interest rates this month.

Analysts are predicting the central bank will raise rates three times this year, with a second hike in March and another later in 2022.

That was enough to offset broader market jitters after minutes from the US Federal Reserve’s December meeting indicated the central bank will start withdrawing monetary support faster than previous unwinding episodes.

Against this backdrop, we expect the Rand to gain further ground against the dollar in the coming days.

Egyptian Pound gains amid sukuk debut
The Pound appreciated marginally against the dollar this week, strengthening to 15.70 from 15.71 at last week’s close.

Egypt is planning to issue a debut $2bn sukuk in the first half of 2022 once new regulations are in place to enable the government to issue Sharia-compliant bonds. Money raised through the sukuk will be used to help fund the country’s social and economic development projects.

Egypt is targeting a doubling in exports to $60bn annually by 2025, according to Trade Minister Nevine Gamea. As elsewhere, inflation is edging higher, reaching 6.5% in December from 6.2% a month earlier. We maintain our outlook for stability in the Pound.

Terry Karanja
Treasury Associate, AZA

Record low Kenyan Shilling may find support
The Shilling slipped to a fresh record low against the dollar this week, trading at 113.35/113.95 compared to 113.30/113.90 at last week’s close as broad demand for the greenback outstripped supply from remittances and exports.

Meantime, higher yields on Kenya’s short-term debt saw demand for its latest treasury bill auction hit a two-month high, with its 91-day and 364-day bills oversubscribed by 141% and 112%, respectively.

Given that the country’s FX reserves remain adequate at just under $8.8bn—sufficient for 5.36 months of import cover—we expect the Shilling to find some support at current levels in the near term.

Ugandan Shilling boosted by World Bank cash
The Shilling strengthened against the dollar this week, appreciating to 3525/3535 compared to 3535/3545 at last week’s close as inflows outpaced corporate demand for the greenback.

Uganda’s Finance Ministry this week released USh44.7tr for ministries and other government entities to cover expenses in the third quarter of this financial year, in line with previous quarters.

A $200m cash injection from the World Bank in the form of credit and a grant will help channel funds to the country’s micro, small and medium-sized enterprises, boosting economic growth and investment. Against that backdrop, we expect to the Shilling to remain resilient against the dollar in the weeks ahead.

Tanzanian Shilling bolstered by FDI surge
The Shilling strengthened against the dollar this week, trading at 2295/2305 from 2302/2312 at last week’s close.

The brighter mood came after data showed foreign direct investment into Tanzania increased to $4.1bn in 2021 compared to just $1bn a year earlier.

That trend has continued, with global mining giant BHP this week announcing a $40m investment in a Tanzanian nickel project. Regional trade also increased during the last financial year, with the country exporting $811m of goods to the East African Community compared to $679m during the previous 12-month period.

We expect the Shilling to be supported by export inflows from commodities such as gold and agricultural products in the week ahead.

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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