AZA Finance FX Week Ahead: Zambia debt relief talks spur Kwacha rally

Zambia’s Kwacha has been one of the best performing currencies this year, gaining 18.5% against the dollar since January despite the economy creaking under the weight of unsustainable debts. Restructuring talks have been ongoing this month, with lenders including BlackRock, the world’s largest asset manager, under pressure to write off debt including $8.4bn of interest payments due in the next few to prevent Zambia’s economy from collapsing.

The Kwacha’s strengthening is partly due to inflation falling below 10% in June from 24.4% in August 2021. While US dollar strength is putting pressure on all emerging market currencies, progress on debt restructuring talks should provide further relief for the Kwacha as FX payment obligations are relaxed.

Naira hits new record low as inflation jumps

The Naira sank to a fresh record low against the dollar on the unofficial market this week, trading at 714 from 706 at last week’s close amid an ongoing FX shortage. A stronger dollar, currency speculation and increased money supply in the economy combined with weak productivity are behind the Naira’s slump, worsened by inflationary pressures. Annual inflation jumped to 20.52% in August from 19.64% a month earlier, the fastest pace of price rises since 2005. The weaker currency, higher raw material costs, rising crude prices and Russia’s ongoing war in Ukraine have all contributed to surging inflation levels. We anticipate sustained pressure on the Naira in the coming days as dollar demand continues to outweigh supply.

Record low Cedi set for 10.50 as Ghana seeks bondholder talks
The Cedi hit a fresh low against the dollar this week, briefly trading at 10.12 before easing back to 10.11—still weaker than last week’s closing level of 10.09.

The slight recovery came after data showed Ghana’s economy expanded at a quicker pace than anticipated in the second quarter, growing 4.8%, up from 1.1% during the first quarter.

Meantime, Ghana is planning talks with local bondholders to restructure its domestic debt as the country seeks to secure a $3bn loan from the IMF. Meanwile, the Bank of Ghana worked with authorities to arrest more than 70 illegal FX dealers, which the bank says will help curb further Cedi depreciation. We expect the currency to remain on the back foot in the near term, and likely to continue weakening towards the 10.50 level.

Rand testing weakest levels since pandemic outbreak
The Rand depreciated against the dollar this week, trading at 17.72 from 17.58 at last week’s close as global risk-off sentiment continued following the US Federal Reserve’s 75 basis point rate hike on Wednesday to combat inflation.

South Africa’s power situation has worsened dramatically over the past week, with the country experiencing stage 6 loadshedding—equivalent to at least six hours of power cuts a day. In response, state-owned power company Eskom said it was looking to purchase 1,000 megawatts of electricity from the private sector.

Given that backdrop, the outlook for the Rand is likely to remain shaky, potentially retesting the 18 level last seen at the start of the Covid-19 pandemic.

Egypt Pound heading for 19.55 levels as inflation climbs
The Pound weakened against the dollar again this week, trading at 19.46 from 19.42 at last week’s close. The steady decline against the greenback comes as high inflation and rising import costs continue to bite.

Annual inflation climbed to 14.6% in August from 13.6% in July. Egypt’s central bank this week eased FX restrictions in a bid to clear a backlog of imports at the country’s ports, which is adding to inflationary pressures.

Given the ongoing strengthening of the dollar and with an absence of positive domestic economic data, we expect further weakness for the Pound over the coming seven days as it heads towards the 19.55 level.

Record low for Kenyan Shilling as Ruto slashes subsidies
The Shilling slumped to a fresh record low against the dollar, trading at 120.35/120.65 from 120.30/120.50 at last week’s close as FX demand from importers in the manufacturing and energy sectors remains elevated. In one of his first acts as Kenyan President, William Ruto slashed fuel subsidies, causing prices of petrol, diesel and kerosene to surge to record highs.

Strong remittance inflows continue to support the country’s current account and prevent the Shilling from sliding more sharply. FX reserves stood at just under $7.4bn at the end of last week, sufficient for 4.2 months of import cover.

We expect the Shilling to remain under pressure in the week ahead, though we don’t envisage a drastic decline given adequate reserve levels.

Ugandan Shilling weaker amid Ebola outbreak, pipeline challenge
The Shilling weakened against the dollar, trading at 3817 compared to 3814 at last week’s close. Ugandan health authorities declared an outbreak of Ebola after a case of the relatively rare Sudan strain was detected in the country—the first outbreak of the strain in Uganda since 2012.

Meantime, the Ugandan Parliament’s Deputy Speaker Thomas Tayebwa condemned a European Union resolution passed last week that seeks to put pressure on Uganda, Tanzania and other stakeholders related to the East Africa Crude Oil Pipeline to halt developments around Lake Albert.

We expect the Shilling to weaken further in the near term amid the Ebola outbreak and concerns about the pipeline project.

Shilling gains as Tanzania investment inflows jump
The Shilling appreciated marginally against the dollar, trading at 2327/2331 from 2328/2332 at last week’s close.

Investor confidence in Tanzania is increasing, with the Dar es Salaam Stock Exchange recording net inflows of TZS7.1bn so far this quarter, compared to TZS2bn of net outflows in the previous quarter.

Vice President Philip Mpango this week urged Tanzanians living abroad to invest in the country and promote investment opportunities in their homeland. We expect the Shilling to weaken marginally against the dollar in the week ahead following the US Federal Reserve’s latest rate hike.

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
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