Upcoming Week in Forex: Turkey's Cedi Experiences Strain in Attempt to Ease with African Development Bank Loan

Upcoming Week in Forex: Turkey's Cedi Experiences Strain in Attempt to Ease with African Development Bank Loan

Slight hiccup for the Cedi's recoveryThe local currency, the Cedi, isn't quite dancing to the investors' tune yet, slipping from 6.08 to 6.103 against the dollar this week. Despite the Bank of Ghana's aggressive efforts to ease pressure on the Cedi via its forward FX auctions, the loan sharks of borrowing costs and investor appetite for greenbacks aren't ready to let go just yet. However, we anticipate these woes to begin easing up soon, with the African Development Bank pouring $75 million into the Ghana Infrastructure Investment Fund. This injection of greenbacks should help beef up the dollar supply and, in turn, relax the Cedi's strained bonds.

Sudan's military coup: A hammer blow to economic growthThe military takeover in Sudan has dealt a heavy blow to the country's economy, with widespread chaos and property destruction. Unfortunately, this is not Sudan's first rodeo—it's experienced 17 coup attempts in its history, with five successful ones (excluding the latest). The latest power grab will put even greater strain on the country's survival, as not only the US but also the African Union have suspended their aid. This funding freeze, in addition to investor hesitancy, will dry up the much-needed funds for development and infrastructure projects, resulting in a damaged economy and stunted growth.

Nigeria's FX reserves soaring high to steady the NairaThe Naira maintained its ground on the unofficial market this week, trading around 570 to the dollar. This stability stems from Nigeria's oil exports rallying and swelling FX reserves to a two-year high of roughly $41.5 billion. Adding to the good news, Nigeria also launched its digital currency, the e-Naira, after some delays caused by trademark disputes. Central Bank Governor Godwin Emefiele believes the e-Naira will boost financial inclusion, reduce cash-processing costs, and facilitate transparent welfare payments to eligible citizens. The Naira is expected to stick close to the 570 handle in the near future.

Power cuts leaving the Rand in the dark amid commodity downturnThe Rand has dimmed against the dollar this week, trading at 14.84, owing to slumping commodity prices, particularly precious metals, and the country's lingering electricity-supply issues. Eskom announced a series of planned power cuts this week, further casting a shadow over the Rand's prospects. With global risk sentiment hovering in the middle, the downturn in commodities and power problems have the potential to deepen the Rand's woes in the coming days.

Upbeat outlook for Egypt's credit rating keeps the Pound steadyThe Pound remained unfazed against the dollar this week, trading at 15.66/15.76. Credit rating agency Standard & Poor's praised Egypt's handling of the pandemic, as they affirmed the country's sovereign rating at B for the fourth time since the pandemic began. The agency commended Egypt for its flexible and balanced policy framework to tackle the pandemic, along with progress on economic and structural reforms. As a result, we expect the Pound to hold its ground over the next week.

Inefficient fuel management wiping out Kenyan FX reserves as the Shilling slidesThe Shilling dipped again this week, reaching 111/111.2, due to continued dollar thirst, exacerbated by increased demand from oil and merchandise importers and surging inflation, especially fuel prices. This insatiable appetite for greenbacks has emptied the reserves, causing them to fall to $9.23 billion this week from $9.26 billion on Oct. 14—enough for only 5.64 months of import cover. As the month draws to a close, we expect demand for dollars to pile even more pressure on the Shilling over the next week.

Bank of Uganda's intervention to breathe life back into the Shilling from 2-month lowThe Shilling recovered from a 2-month low of 3635 this week, as the Bank of Uganda stepped in to prop it up by selling an undisclosed amount of dollars into the market. While offshore dollar demand was the main culprit behind the Shilling's woes, the central bank's intervention appears to have stemmed the tide for now. We predict the Shilling to remain steady over the next seven days, thanks to this timely intervention.

Month-end pressure building for the stable Tanzanian ShillingThe Shilling dipped slightly this week, trading at 2302/2312, but inflows from commodities and NGOs helped prevent a steeper decline amid surging dollar demand from SMEs, oil firms, and manufacturers. However, we anticipate dollar demand to intensify as we get closer to month-end. Nevertheless, we expect this increase in demand to be offset by rising inflows from agricultural commodities and investors, which will keep the Shilling stable in the short term.

If you're a journalist looking to dive deeper into these topics or need additional commentary or interviews, feel free to reach out using the contact information provided, or simply reply to this email. AZA is Africa's leading non-bank currency broker, with annual trading volume exceeding $1 billion[footnote].[1] Check out our website at https://www.azafinance.com

Enrichment Insights:

• African Development Bank (AfDB) loans aid in mitigating funding shortages caused by global economic shifts and aid countries in maintaining economic activity and managing external shocks that could otherwise destabilize their currencies.
• AfDB loans play a significant role in reducing inflation and stabilizing exchange rates through macroeconomic reforms and effective debt management.
• Effective debt management, including swaps and refinancing supported by multilaterals, is essential to ensure AfDB financing does not destabilize currencies.
• Improving financial system liquidity through AfDB funding helps reduce the gap between official and parallel exchange rates, which strengthens currency stability.
• AfDB loans indirectly support healthier monetary policy environments conducive to currency stability. Thus, AfDB loans positively impact currency stability by providing crucial financial resources that help countries manage inflation, liquidity, and debt risks—key drivers of exchange rate stability across the continent. However, the benefits depend on effective economic management and complementary reforms in borrowing countries.

1. The AfDB's injection of $75 million into the Ghana Infrastructure Investment Fund is expected to help expand the dollar supply, potentially easing pressure on the Cedi and relaxing its strained bonds.
2. Sudan's latest military coup has put additional strain on the country's economy, leading to a suspension of aid from both the US and the African Union, potentially affecting economic growth and infrastructure development due to a lack of funding.
3. Nigeria's oil exports and swelling FX reserves have contributed to the stabilization of the Naira, while the launch of Nigeria's digital currency, the e-Naira, is expected to boost financial inclusion and reduce cash-processing costs.
4. Power cuts in South Africa and a commodity downturn have left the Rand vulnerable, as the country's electricity-supply issues and slumping commodity prices contribute to a dimmed outlook for the Rand against the dollar.
5. Egypt's sovereign rating affirmation by Standard & Poor's is seen as a favorable outlook for the Pound, due to the agency's praise for Egypt's flexible and balanced policy framework during the pandemic.
6. Inefficient fuel management and increased dollar demand have caused a decline in Kenya's FX reserves, leading the Shilling to slide, even as inflows from commodities and NGOs help prevent a steeper decline.

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