AZA Finance FX Week Ahead: Ghana boosts gold reserves in bid to lift Cedi

Assessing the gold purchasing programme: what should we expect?

Africa divergence from global rate hikes likely 
India’s recent ban on wheat exports has pushed grain prices even higher, piling further stress on African nations already heavily impacted by global supply disruptions.

While the ban won’t apply to existing contracts between India and Egypt, it is likely to have far reaching consequences for wheat importers such as Kenya and Nigeria.

Imports account for 98% of Nigeria’s wheat supply, for example. Meantime, economic stagnation and soaring prices in Zimbabwe have prompted the government to suspend import tariffs to enable its citizens to get access to food and other basic commodities from neighbouring countries.

Zimbabwe’s inflation rate hit 96.4% last month from 72.7% in March. Given those economic strains across the continent, we expect African central banks to diverge from the global rate hiking trend to focus on supporting their economies.

Naira hits record low 600 before elections
The Naira dropped to a new low this week, depreciating to 600 from 594 as politicians rushed to buy dollars for vote hunting ahead of Nigeria’s primary elections that kick off this weekend.

Central bank Governor Godwin Emefiele effectively ended his bid for the presidency after he missed deadlines to formalise his candidacy and resign from his post at the bank. Nigeria’s inflation rate jumped to 18.37% in April from 17.2% a month earlier amid rising food and energy prices.

We expect the Naira to depreciate further in the short term, however we expect gradual appreciating in the longer term as recipients of the political dollars reconvert to local currency via the parallel market.

Ghana boosts gold reserves in bid to lift Cedi
The Cedi weakened against the dollar this week, sliding to 7.72 from 7.53 at last week’s close. That came after the Bank of Ghana sold $50m into the market in its latest FX auction, considerably less than $162m of bids made—disappointing traders and causing the Cedi to trade on the backfoot.

The central bank also this week announced a bulk gold buying programme to boost its gold reserves in a bid to strengthen the Cedi without impacting inflation—which hit 23.6% in April.

While the success of that programme will be closely watched, we believe the Cedi will continue to lose ground against the dollar in the near term.

Rand gains with 50 basis points hike expected
The Rand strengthened against the dollar this week, trading at 15.91 from 16.29 at Friday’s close. Inflation came in at 5.9% for April, unchanged from March and continuing to test the upper boundary of the central bank’s target range of 3%-6%.

The bank is likely to quicken the pace of its interest rate rises after three consecutive 25-basis-point hikes, with a 50-basis-point increase on the cards at its next meeting.

That action is expected given the inflationary risks posed by a weaker Rand and the more hawkish tone from the US Federal Reserve and the European Central Bank, which has reduced the appeal of South African assets for foreign investors.

We believe the Rand will continue trading at around the 16 level in the week ahead.

Inflation dampens Egyptian Pound outlook
The Pound appreciated marginally against the dollar this week, trading at 18.29 from 18.31 at last week’s close.

That move was partly due to a weaker greenback and improved GDP forecasts, with economists predicting growth of 5.6% for the current financial year, up from a previous estimate of 4.8%.

However, Egypt’s inflation climbed to a near three-year high of 13.1% in April, up from 10.5% in March, with looming foreign debt payments to the IMF and others adding to the potential challenges ahead.

To that end, we expect this week’s Pound strengthening to be short-lived as the medium-term outlook dims.

Kenyan Shilling slides as drought worsens
The Shilling weakened marginally against the dollar this week, trading at 115.97 from 115.93 at last week’s close. That came as a worsening drought in the east Africa region has left 3 ½ million Kenyans in need of food aid—up from 3.1 million in February.

Meantime, opposition leader Raila Odinga is now favourite to win August’s election after an opinion poll showed him pulling ahead. Odinga this week named Martha Karua as his running mate, which would make her the country’s first female deputy president if Odinga defeats current Deputy President William Ruto.

We foresee sustained pressure in coming days as inflation persists.

Household spending recovery to boost Ugandan Shilling 
The Shilling stumbled against the dollar this week, depreciating to 3658 from 3598 at last week’s close—taking its losses against the greenback to 4.07% over the past four weeks.

However, we believe an increase in Ugandan household spending should start to halt those losses.

We expect real household spending to grow by 6.3% this year from 5% in 2021, driven by our view that unemployment levels will fall and the international tourism sector will recover.

Against that backdrop, we expect the Shilling to appreciate over the coming weeks.

Tanzanian Shilling steady amid inflation spike
The Shilling depreciated slightly against the dollar this week, trading at 2326 from 2325 at last week’s close. Inflation rose sharply in the first quarter, with Russia’s war in Ukraine pushing oil prices higher.

Food prices were also up, with sorghum rising 27% compared to the first quarter of 2021, while tea sales decreased by 16.2% over the same period as bad weather hampered production.

Meantime, Tanzania’s national debt increased by $6.4bn to $37.8bn in March. Despite that slew of negative data, we expect the Shilling to be relatively stable against the dollar 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 

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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