AZA Finance FX Week Ahead: Cedi pressure likely as Mahama warns of default risk   

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EU sees Africa as solution to Russian energy exit
The European Union is stepping up efforts to source more natural gas from Africa to help reduce the 27-nation bloc’s dependence on Russian energy.

Countries including Algeria, Egypt, Nigeria, Senegal and Angola all provide ready and untapped opportunities for increased gas supply.

Meantime, in Tanzania, plans to revive a stalled $30bn liquified natural gas project could attract renewed interest from international investors given the urgency for the EU to diversify energy supplies.

Naira pressure expected as Fed hikes rates
The Naira was unchanged against the dollar this week, trading at 587.5—a whisker away from its record low level of 589.

Trading was muted however due to Eid celebrations. The IMF projects that Nigeria’s inflation rate will hit 16.2% this year—the highest annual level since 2017.

With the US Federal Reserve lifting interest rates by half a percentage point—its biggest hike in more than two decades—we expect there will be increased pressure on the Naira in the near term.

Cedi pressure likely as Mahama warns of default risk 
The Cedi strengthened marginally against the dollar this week, appreciating to 7.513 from 7.537 at last week’s close amid thinner trading due to the Labour Day and Eid holidays.

Ghana’s main opposition leader and former president John Mahama warned that the country is at risk of defaulting on its debt unless drastic measures are taken, urging President Nana Akufo-Addo to sack his finance minister.

Total public debt had risen to almost 77% of GDP at the end of last year, compared to 74% at the end of 2020. With the dollar strengthening, we project sustained pressure on the Cedi in the coming weeks.

Five-month-low Rand poised for more weakness
The Rand depreciated marginally against the dollar this week, trading at 15.82 from 15.79 at last week’s close, its weakest level in almost five months.

Rising inflation, devastating floods in Kwazulu-Natal and plans for increased power cuts as South Africa heads into the winter months all contributed to the weakening at home.

Meanwhile, speculation of further Fed interest rate hikes are weighing on the currency, while slower growth in the US and China is also dragging commodity prices lower, dampening South Africa’s economic outlook. Given that backdrop, we expect the Rand to weaken in the weeks ahead.

Egyptian Pound to stabilise on economic outlook
The Pound weakened slightly against the dollar this week, trading at 18.48 from 18.43 at last week’s close, albeit amid lighter trading due to Eid celebrations.

The IMF is forecasting Egypt’s economy to expand 5.9% this year compared to 3.3% in 2021, before falling back to 5% in 2023 given the knock-on impact of Russia’s war in Ukraine.

The IMF also forecasts that Egypt’s public debt-to-GDP ratio will improve to pre-pandemic levels by 2025 or 2026. Given that outlook, we expect the Pound to stabilise against the dollar in the coming days.

Kenyan Shilling stumbles to new low
The Shilling hit a fresh low against the dollar this week, depreciating to 115.75/115.95 from 115.70/115.90 at last week’s close amid the ongoing shortage of FX and elevated demand from the manufacturing and energy sectors.

Inflation surged higher in April, up to 6.5% from 5.6% in March on the back of higher fuel and food prices.

Foreign investor activity has also slowed, driven lower by the Covid-19 pandemic, domestic election uncertainty and the impact of Russia’s war in Ukraine. We expect the Shilling to remain under pressure in the near term.

Energy dollar demand to weigh on Uganda Shilling 
The Shilling weakened slightly against the dollar this week, trading at 3550/3560 from 3540/3550 at last week’s close on the back of increased demand for the greenback from companies and importers.

Uganda is due to host the Uganda-Turkey business summit at the end of next week, which is likely to help boost investment, trade and tourism opportunities for both countries.

Even so, we believe the Shilling will remain under pressure over the coming week given increased dollar demand from the energy sector.

Tanzanian Shilling firm as EU trade ties deepen
The Shilling was steady against the dollar this week, trading at 2320/2330 as moderate FX demand from companies was matched by inflows from agricultural exporters and non-governmental organisations.

A meeting between the EU Ambassador to Tanzania and the East African Community on the back of increased exports from the EAC to the EU during the pandemic, outlined plans to further boost trade.

Those discussions included capacity building of trade facilitation agencies and the digitalisation of customs processes, which should help increase business and investment opportunities and spur economic growth. We expect the Shilling to remain stable over 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 

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.

For more information, high-resolution charts or interviews, please contact:

Gavin Serkin
[email protected]
+44 20 3478 9710

 

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