Naira to extend 2-month high; ANC corruption trials damage rand; How golden Ghana defies 2020 COVID selloff

How golden Ghana defies 2020 COVID selloff

Ghana’s Cedi ranks as one of the most valuable currencies in Africa, having traded steadily throughout the pandemic period in contrast to declines across most of the continent’s major currencies. The currency remains just 1% lower YTD against the dollar. Certainly, this showcases a strong and resilient economy, but it also comes down to the country’s fortune as Africa’s biggest producer of gold. With bullion prices at record highs, and progress toward its millennium development goal of halving poverty levels, Ghana’s relative economic stability seems set to continue to anchor the Cedi.

Naira to extend 2-month high on CBN sales

The Naira soared to a two-month high of 435 on the parallel market from as low as 477 last week as the CBN resumed forex sales to Bureau de Changes fueled by a jump in its reserves to $35.66 billion. With international flights restarting from Sept. 7, the CBN has instructed BDCs to sell at a cap of 386 to end-customers. The parallel market is likely to further align with the official rate, heading toward 400/410 levels, as the CBN sells $20,000 to BDCs biweekly while lowering savings account interest rates to 1.25% in an effort to discourage saving and boost the economy through consumer spending.

ANC corruption trials damage rand

The Rand started the week tumbling 2% from 16.58 to 16.91 per dollar on speculation that ANC infighting would trigger cabinet changes following reports of graft during the coronavirus crisis. Having pledged to clean up the party after corruption scandals under his predecessor Jacob Zuma, President Cyril Ramaphosa this week warned party officials must resign their positions if charged. Some reprieve for the Rand came later in the week thanks to the US Federal Reserve’s policy shift implying historically low interest rates even in the face of inflation. Meanwhile, South Africa continues to face bleak economic data on unemployment and ongoing opposition to necessary reforms to achieve a strong, persistent economic recovery. This will continue to weigh on the Rand in the near term.

Energy demand weakens Kenyan Shilling

The Shilling came under pressure, trading at 108.20/ 108.50 levels, as dollar demand from energy importers and reduced risk appetite among offshore investors outweighed limited hard currency inflows from remittances and exports. To support the economy, the Central Bank of Kenya is inviting investors to bid for 15- and 20-year Treasury bonds worth Ksh 50 billion in auctions running until Sept. 15. Kenya’s National Bureau of Statistics reported that inflation for the month of August held firm from July at 4.36%. We foresee slight pressure on the shilling this coming week as a result of continued importer demand for dollars especially in the energy sector.

Uganda reopening means more pressure on Shilling

The Shilling weakened to 3680/3690 levels amid increased demand for hard currency from energy and manufacturing importers. The Bureau of Statistics revealed that inflation overall declined to 4.6% in August from 4.7% in July as a result of reduced annual energy, fuel and utilities inflation, slowing from 6.6% to 3.4%. The government also directed that some sectors closed due to the COVID pandemic are to be reopened, including education, tourism and worship centres, airports and borders. Factoring this in, we foresee increased activity in the economy putting more pressure on the Shilling to weaken in the coming week.

Tanzanian tourist inflows keep Shilling steady

The Tanzania Shilling remained steady at levels of 2312.91/2326.91 (2319.9) compared with 2311/2325 (2318) a week ago. Moderation reflects calmness in the country as presidential elections draw closer. With major airlines increasing trips to Tanzania, the tourism and hospitality industries look set to register more growth. However, overall we foresee some pressure for the Shilling to weaken near term as rising political temperatures limit investor inflows, outweighing support from continued inflows from the tourism sector.

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.