Africa’s oil currencies to diverge; Naira rally ends on BDC backlog; GDP hemorrhage hammers Rand, briefly

Africa’s oil currencies set to diverge

Africa’s two biggest oil producers have suffered similar losses in their currencies this year as swings in fuel prices cut FX inflows. Angola’s Kwanza is down by around 30% year-to-date against the dollar, mirroring the Naira’s decline in the parallel market. Yet the paths ahead for the two currencies look set to diverge as pressure builds on Angola from increased debt servicing costs. According to Fitch, Angolan government debt levels are pointing towards 129% of GDP or 850% of the state revenue. The rating agency downgraded Angola from B- to CCC on Friday. While Angola can turn to multilateral lenders along with its sovereign wealth fund to meet obligations this year, we foresee sustained pressure for the Kwanza as falling reserves weaken confidence.

Naira rally halts on BDC backlog

The Naira rally triggered by resumption of dollar sales by bureau de changes and speculators cutting dollar positions ended this week, with dollar sales by the BDCs insufficient to meet demand. The market retraced to 445 per dollar in the parallel market from 440 last week. BDCs still have a huge backlog on their FX obligations, which will continue to put pressure on the Naira in the coming days, as will the economic backdrop of lower oil revenues and reserves.

GDP hemorrhage hammers Rand, briefly

The Rand lost almost 2% against the dollar, weakening from 16.62 to 16.97, after South Africa’s Q2 GDP collapsed by 51%. The country’s recession appears as broad as it is deep, with the majority of sectors recording negative growth during this period. However, the Rand quickly reverted back to 16.62 levels amid signs the worst may be behind us, with a quarterly gauge of sentiment compiled by Stellenbosch University’s Bureau for Economic Research increasing to 24 from a record low of 5 in the previous three months, against a median estimate of 8, based on three economists in a Bloomberg survey. We foresee sustained levels for the Rand in coming days.

Kenya treasuries sale to boost needed dollars

Kenya’s Shilling regressed slightly against the dollar to 108.55 levels due to strong demand for dollars from the energy sector. Amidst a shortage of dollar sellers into the market, the Shilling was supported by usable foreign exchange reserves reported by the Central Bank of Kenya at USD 8,865 million, equivalent to 5.38 months of import cover as of Sept. 3, which is a decline from USD 8,963 million the previous week. Further relief should come on Sept. 16 as offshore investors buy treasury bonds worth Sh 50 billion, boosting supply of dollars. On Tuesday, the World Bank stated Kenya had secured $750 million to develop the economy in projects including improving the movement of people and goods, digital connectivity and access to social services. Given these dollar inflows, foresee a more stable Shilling in the coming days.

High frequency indicators point to Uganda recovery

The Ugandan Shilling edged slightly weaker to 3685/3695 levels due to dollar demand from commercial banks and the energy sectors. In its Financial Stability report, the Bank of Uganda projects GDP growth will rise to between 3-4% in the financial year 2020-2021 as high frequency indicators of economic activity point to a recovery. The BOU outlook will help stabilize the Shilling in the near term.

Tanzanian export rise reins in Shilling

The Tanzanian Shilling remained steady at levels of 2315/ 2324.95 (2319.98) from 2312.91/ 2326.91(2319.90) a week ago. The Bank of Tanzania announced positive news in its Monthly Economic Review (MER) for August, stating that exports continued to pick up as economies globally re-opened from lockdowns. Earnings from exports of goods and services amounted to USD 9,815.3 million in the year to July 31, compared with USD 8,706.6 million during the same period last year. Inflows from horticultural products, gold and agriculture including sisal, cashew nuts, cotton and cloves increased due to improved volume and prices. Inflation for August stagnated at 3.3% amid falling staple food prices. We foresee the Shilling remaining steady in the coming week as an increase in manufacturing and oil importers’ dollar demand is balanced by continued agricultural inflows.

About The Author

  • Murega Mungai is the Trading Desk Manager at AZA, based out of the Nairobi office. His work revolves around FX trading and market analysis of emerging and frontier markets, particularly in Africa.

  • Terry Karanja is a Treasury Associate at AZA. She is actively involved in conducting market research to analyze current trends in the global economy and their effects on currencies, with a strong focus on Africa.

About The Author

Murega Mungai

Murega Mungai

Murega Mungai is the Trading Desk Manager at AZA, based out of the Nairobi office. His work revolves around FX trading and market analysis of emerging and frontier markets, particularly in Africa.