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More Gains for Rand and Shilling at Multi-Month Highs

Rand near 14-month high has further to rally

The rand strengthened this week to 14.4100, nearing a 14-month high, from 14.5937 at the end of last week this week. The currency is rallying amid dollar weakness on resurgent confidence that the Fed is unlikely to tighten monetary policy anytime soon. We project further gains for South Africa’s currency as the greenback weakens further with risk-on momentum.


Nigeria’s foreign exchange reserves jump to month-high

The Naira appreciated to 478/482 to the dollar on the parallel market this week from 485 at last week’s close, as the nation’s foreign exchange reserves rose by $620m during the last two weeks to the highest in over a month at $35.036bn as of April 9, according to the Central Bank of Nigeria. The increase in external reserves is attributed to the rise in crude oil prices recorded early in March. The increase may also be partly due to an uptick in diaspora remittances after CBN incentives for dollars received in Nigeria. On the NAFEX window, the currency depreciated this week to 410.50 from 409.75. 

We expect the Naira to remain stable, hovering around 480 to 485 levels on the parallel market and 400 to 415 level on the NAFEX window, as foreign exchange coffers are set to receive a further boost from recently announced plans for a $500m Eurobond. On the flip side, we expect inflation for the month to hit a new high of 20%. On April 6, Nigeria’s Securities and Exchange Commission banned technology platforms –­ such as Bamboo, Chaka and Trove ­– from offering foreign stocks to Nigerians. It says only approved securities can be sold to the Nigerian public. The ban’s fallout will further weigh on the economy, which could be reflected in the exchange rate.


IMF’s Ghana deficit outlook wide of government projection

The Cedi weakened to 5.7850 to the dollar this week from 5.7500 at last week’s close. The International Monetary Fund this week forecast an end-year fiscal deficit of 12.6% of GDP, well above the government’s projection of 10.8% including financial sector clean-up costs. “The COVID-19 pandemic is impacting Ghana severely,” the IMF said in its statement. “Growth is projected to slow down, financial conditions have tightened, and the exchange rate is under pressure. The budget deficit is projected to widen this year given expected lower government revenues and higher spending needs related to the pandemic.” We expect the Cedi to remain around current levels.


Egypt’s trade deficit narrows by 9%

The Pound was little changed this week at 15.6830 to the dollar vs. 15.66 at the end of last week. We expect it to remain stable, supported by export inflows. The government reported this week that the trade deficit had narrowed by 9% last year. Egypt’s shortfall declined to $42bn in 2020 compared to $45.9bn in 2019 and $52.6bn in 2018, as a result of the reduced value of imports. Foreign ministers of Egypt and Russia met up in Cairo this week to discuss trade issues and the dispute with Ethiopia over a massive dam project on the River Nile. Russian companies are expected to invest up to $7bn in building industrial plants in the Suez Canal area.

Kenyan Shilling gains likely from 9-month high

The Shilling strengthened to 106.8 to the dollar, a nine-month high, from a close of 107.29 last week. The release last week of part of the Ksh255bn loan facility Kenya has secured from the IMF boosted the country’s foreign exchange reserves, strengthening a weak shilling against major currencies. The Central Bank of Kenya’s weekly bulletin showed that reserves had improved to $7.425bn (4.56 months of import cover) on April 8, compared with $7.34bn (4.51 months of import cover) the previous week, a jump of almost Ksh90bn, including an estimated Ksh34bn from the IMF. The National Treasury raised Ksh81.9bn in proceeds from its second infrastructure bond, a local borrowing instrument, this year. The sum raised on April 8 was above the Exchequer’s target of Ksh60bn, an indicator of strong investor appetite for the issue which is exempt from tax. Further helping sentiment, export earnings inflows remain strong, in particular from the horticulture sector. Kenya has become the second-largest supplier of flowers to the Netherlands, for example. A decline in dollar demand on the back of a drop in companies’ dividend payments removed some pressure from the Shilling this week. We foresee continued support for the Shilling in the coming week on the back of strengthening foreign exchange reserves.


Ugandan Shilling improves as $3.5bn oil pipeline deal signed

The Shilling improved against the dollar to trade in the range of 3595/3605 this week from last week’s level of 3,650/3,660, on the back of positive sentiment after the signing of a long-awaited oil pipeline agreement between Uganda and Tanzania. The $3.5bn East African Crude Oil Pipeline (Eacop) will be constructed from Uganda to the Indian Ocean at Tanga in Tanzania. This week, the Bank of Uganda’s Monetary Policy Committee (MPC) left the central bank rate unchanged at 7%, citing a high degree of uncertainty surrounding the economic outlook. On Wednesday, the country’s Minister of Finance Matia Kasaija tabled a proposed budget of 41.2 trillion Shillings for the financial year 2021/2022, which is 4.3 trillion Shillings less than last year’s budget. We expect a stable Shilling as the Central Bank continues to intervene in the market.


Tanzanian economy forecast to expand at 5.7% this year

The Shilling traded at the same level as last week’s close in the 2314 to 2324 to the dollar range. The Bank of Tanzania’s Monetary Policy Committee forecast April 6 that the country’s economy would expand by 5.7% this year, citing sustained public investment, normalisation of global trade and investment, and the rollout of measures to improve the business environment and bank lending to the private sector. On Sunday, President Samia Suluhu Hassan signed the $3.5bn East African Crude Oil Pipeline (Eacop) agreement in Entebe, Uganda. The project is likely to stimulate trade and investment and create employment. We foresee improvement in the Shilling in the coming week on the back of increased investor flows.

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.

Authors

  • 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.