Ghana's currency, the Cedi, predicted to hit a new low of 10.50 in the upcoming FX week, as the government plans to engage bondholders in discussions.
Boost in Zambia's Kwacha Performance Amid Debt Relief Talks
Zambia's Kwacha currency has experienced a significant surge of 18.5% against the US dollar since January, defying the economic strain from mounting debts. This rally comes amid ongoing negotiations for debt restructuring, with international lenders including BlackRock under pressure to delay or forgive around $8.4 billion in interest payments to prevent a potential economic collapse in Zambia.
The Kwacha's strengthening can be attributed in part to a drop in inflation to below 10% in June, down from 24.4% in August 2021. Despite the US dollar's general strength affecting all emerging market currencies, progress on the debt restructuring talks should offer additional relief for the Kwacha as financing obligations are eased.
Nigeria's Naira, Facing Record Low Amidst Inflation Spike
The Naira plummeted to a new record low against the US dollar this week, trading at 714 compared to 706 at the end of last week, amid an ongoing foreign exchange shortage. Factors driving the Naira's decline include a stronger dollar, currency speculation, increased money supply, weak productivity, and escalating inflationary pressures. August's inflation rate climbed to 20.52%, marking the fastest pace of price growth since 2005. Various factors contributing to the inflation surge include the weaker currency, higher raw material costs, rising crude prices, and the ongoing Russia-Ukraine conflict. In the coming days, we anticipate further pressure on the Naira due to heightened demand for dollars.
Ghana's Cedi Holds Steadier Course Amid Economic Expansion and Bondholder Talks
The Cedi weakened slightly against the US dollar this week, trading at 10.11 following a brief drop to 10.12. Although a modest recovery was observed, it still marked a weaker position compared to last week's close of 10.09. The swift recovery came after data revealed stronger-than-expected economic growth at 4.8% in Q2, up from 1.1% in Q1. Ghana is reportedly planning discussions with domestic bondholders to restructure its domestic debt as part of a $3 billion loan secured from the International Monetary Fund (IMF). The Bank of Ghana recently arrested over 70 illegal foreign exchange dealers, which authorities claim will help curb further Cedi depreciation. Nevertheless, we expect the currency to remain unstable in the near term, potentially continuing to weaken towards the 10.50 level.
South African Rand and United States Federal Reserve Loom Over Currency
The Rand depreciated against the US dollar this week, trading at 17.72 from 17.58 at the end of last week. This decline came on the heels of the US Federal Reserve's 75 basis point interest rate hike on Wednesday to combat inflation, fueling global risk-off sentiment. South Africa's power situation has deteriorated significantly over the past week, with electricity supply cutting off for at least six hours a day due to widespread loadshedding. In response, state power company Eskom plans to purchase 1,000 megawatts of electricity from private sector suppliers. Given the uncertain circumstances, the outlook for the Rand remains gloomy, potentially retesting the 18 level last seen at the start of the Covid-19 pandemic.
Egyptian Pound Slides as Inflation Climbs
The Pound weakened further against the US dollar this week, trading at 19.46 compared to 19.42 at the end of last week. The continuous decline against the greenback is linked to high inflation and increasing import costs. Inflation increased to 14.6% in August compared to 13.6% in July. Egypt's central bank eased foreign exchange restrictions in an attempt to alleviate import backlogs. With the ongoing strengthening of the US dollar and a lack of favorable domestic economic data, we expect further weakness for the Pound in the coming week, potentially reaching the 19.55 level.
Kenyan Shilling Sinks to Record Low Amidst Fuel Subsidy Cuts
The Shilling plunged to a fresh record low against the US dollar this week, trading at 120.35/120.65 compared to 120.30/120.50 at the end of last week. The Shilling's decline is due to persistent foreign exchange demand from importers in the manufacturing and energy sectors, despite strong remittance inflows. In one of his first acts as president, William Ruto reduced fuel subsidies, causing petrol, diesel, and kerosene prices to skyrocket to record highs. Remittance inflows, however, continue to provide support for the country's current account, thereby preventing the Shilling from depreciating more sharply. We expect the Shilling to remain unstable in the coming week, though we don't foresee a drastic decline due to adequate reserve levels.
Ugandan Shilling Affected by Ebola Outbreak and Pipeline Challenges
The Shilling weakened against the US dollar, trading at 3817 compared to 3814 at the end of last week. Ugandan health authorities detected a case of the Sudan strain of Ebola, marking the first outbreak of the strain in the country since 2012. Additionally, the Ugandan Parliament's Deputy Speaker Thomas Tayebwa criticized a European Union resolution advocating pressure on 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 due to the Ebola outbreak and concerns about the pipeline project.
Tanzanian Shilling Remains Resilient Amid Boost in Investor Confidence
The Tanzanian Shilling appreciated marginally against the US dollar, trading at 2327/2331 compared to 2328/2332 at the end of last week. Inflows of foreign direct investment in Tanzania have been on the rise, with the Dar es Salaam Stock Exchange recording net inflows of TZS7.1 billion thus far this quarter, contrasting with TZS2 billion of net outflows in the previous quarter. Vice President Philip Mpango urged Tanzanians living abroad to invest in their homeland and promote investment opportunities. We expect the Shilling to weaken slightly in the coming week following the latest US Federal Reserve rate hike.
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- Despite the ongoing negotiations for debt restructuring with international lenders like BlackRock, Zambia's Kwacha currency is at risk of weakening again due to mounting debts and economic strain.
- The strengthening Kwacha can be partly attributed to a drop in inflation and progress on the debt restructuring talks, providing temporary relief for the currency.
- The Nigerian Naira has plummeted to a new record low against the US dollar, due to a stronger dollar, currency speculation, increased money supply, weak productivity, and escalating inflationary pressures.
- Ghana plans discussions with domestic bondholders to restructure its domestic debt as part of a $3 billion loan from the International Monetary Fund (IMF), which may offer some support to the struggling Cedi.
- The South African Rand is being heavily impacted by the US Federal Reserve's interest rate hikes and ongoing power issues contributing to a gloomy outlook for the currency.
- The Egyptian Pound's continuous decline against the US dollar is linked to high inflation and increasing import costs, but the central bank's easing of foreign exchange restrictions may provide some relief.
- The Kenyan Shilling's decline is due to foreign exchange demand from importers and a recent reduction in fuel subsidies, causing fuel prices to skyrocket.
- The Ugandan Shilling is anticipated to weaken further due to the Ebola outbreak and concerns about the East Africa Crude Oil Pipeline project.
- The Tanzanian Shilling appreciated slightly due to inflows of foreign direct investment, strengthening investor confidence, but could weaken again following the latest US Federal Reserve rate hike.
- In the realm of personal finance, investors should closely monitor currency fluctuations and economic developments to make informed decisions about their wealth management and investments in global markets.
