African Currency Weekly (with AZA)

The Naira dances on a barrel of oil, the Cedi rescued by a firefighter named Bank Of Ghana, the Rand is crazy about gold, the Egyptian Pound in green, the Kenya Shilling jostled by importers, the Ugandan Shilling under pressure, the Tanzanian shilling in the good graces of the IMF. In this weekly column on African currencies, experts from AZA, the largest non-bank currency broker in Africa, with a transaction volume of more than $ 1 billion per year, analyze the evolution of currency fluctuations on the continent.

AfDB guarantees loans SMEs to the tune of $ 7 billion

The African Development Bank (AfDB) laid out plans to support the growth of the continent’s free trade area by guaranteeing loans worth $ 7 billion over the next five years to help businesses sell their products across Africa. This follows Afreximbank’s pledge earlier this year to release $ 40 billion to boost intra-African trade during the same period. This kind of financial support is absolutely necessary to boost economic growth in the African Continental Free Trade Area countries, especially to help small and medium-sized businesses looking to recover from the repercussions of the coronavirus pandemic.

Michael Nderitu
Chief Risk Officer, AZA

Seven-year record oil price supports the naira

The Naira depreciated against the dollar this week, sliding to 573 in the unofficial market from 570 at last Friday’s close. The weakness comes even as Nigeria’s foreign exchange reserves continue to grow, reaching $ 38.4 billion at the end of last week, according to Central Bank of Nigeria data on 30-day moving average reserves. Earlier this week, the country’s Vice President Yemi Osinbajo called on the central bank to “let the Naira reflect the market as much as possible to stimulate supply,” saying the currency is artificially overvalued, discouraging investors. foreign capital inflows. This is in stark contrast to the view of President Muhammadu Buhari, who has consistently spoken out against a devaluation of the naira. As oil prices have peaked in seven years and continue to boost the country’s export earnings, we expect the Naira to plateau around 570.

Bank of Ghana strengthens support for Cedi

The Cedi has depreciated slightly against the dollar this week to 6.065 from 6.053 at last week’s close. The slight weakening came despite planned tranche disbursements for the $ 1.5 billion cocoa loan facility, with half of that funding expected to go to the Ghana Cocoa Board account this month. The country’s central bank continues to support the market through its bimonthly forward exchange rate auctions; in the last quarter alone, it sold $ 300 million in its bimonthly auctions, roughly double the volume in the previous quarter. Increased support is expected as demand for currencies increases over the coming holiday season, and we expect this to help strengthen the Cedi in the coming months.

Rising commodity prices Rand

The Rand appreciated against the dollar this week, trading more firmly at 14.81 from 14.94 at last Friday’s close, boosted by higher commodity prices, including key exports like the gold and platinum. Lower yields on U.S. Treasuries also rekindled appetite for emerging market currencies more generally, helping the Rand recover from a low of 15.07 earlier in the week, when the country was caught up in inflation concerns. We expect higher commodity prices to help support the currency over the coming week.

Green capital inflows to maintain the Egyptian pound

The Egyptian Pound was unchanged against the dollar this week, trading at 15.65 / 15.75. According to the IMF, the economy is expected to grow 3.3% this year, up from its previous forecast of 2.5% in April. The IMF predicts that GDP growth will reach 5.2% next year and 5.8% by 2026. Egypt signed loans this month worth $ 2 billion to help finance green projects in the country; it is also expected to issue more sovereign green bonds, which became the first nation in the Middle East and North Africa to sell such debt last year. We expect to see a stable Pound this week with support from investor inflows.

Leave Mungai
Trading Desk Manager, AZA

Pressure on the Kenyan Shilling persists

The Shilling depreciated slightly this week, trading at 110.85 / 111.15 from 110.55 / 110.85 late last week, amid increased demand for dollars from importers. This week, the pan-African rating agency Agusto & Co. confirmed Kenya’s B + rating, calling its debt situation “moderately high risk”. The agency predicts that the country’s economy will grow 3.8 percent this year, which is significantly lower than the IMF’s estimate for 5.6 percent GDP growth. Kenya’s foreign exchange reserves stood at just under $ 9.4 billion last week, or 5.73 months of import coverage. We expect the Shilling to remain under pressure over the next seven days due to rising oil prices and continued demand from importers for dollars.

Ugandan Shilling braces for further decline

The Shilling rose from 3555/3565 to 3590/3600 at the end of last week as interbank dollar demand increased. An effort by Uganda’s central bank to prop up the currency by selling dollars in the market was not enough to stop the fall. The central bank also held a $ 200 billion treasury bill auction this week with maturities of 91 days, 182 days and 364 days. We expect the Shilling to remain under pressure in the near term due to increased demand for the greenback.

Tanzanian Shilling Outlook Supported by IMF Liquidity

The Shilling traded against the dollar this week at 2300/2310, mostly dampened by inflows into the country. The IMF this week released the $ 576 million COVID-19 relief loan it approved for Tanzania early last month. The funds will be used to implement development projects in sectors such as education, water, health and tourism that have been affected by the coronavirus pandemic. The IMF predicts that Tanzania’s GDP growth will reach 4% this year and 5.1% in 2022. We expect the Shilling is supported in the short term by investor inflows and agricultural exports, especially coffee.

Terry Karanja

Treasury Associate, AZA

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