NDFs show weaker Naira as released Nigerians hunt Dollars
Five-year non-deliverable forwards are pointing to Naira rates at 570 per dollar, tumbling from 413 to the dollar, as Nigerian businesses released from lockdown face a shortage of dollars. Bureau de Changes saw supplies of dollars dwindle as an extended ban on flights reduced dollar inflows from foreigners and local returnees. The Naira weakened to 455 per dollar from 445 on the parallel market. On the positive side, foreign exchange reserves increased by 1.76% to $33.48 billion, supported by inflows from the IMF’s $3.4 billion emergency loan and the repatriation of $332 million of funds looted by former dictator Sani Abacha. Negative pressure is likely to continue in the coming days amid the resurgence of dollar demand.
Rand as risk barometer stabilizing as lockdowns ease
The staged reopening of economies around the world sustained stronger levels for the Rand at around 18.50 per dollar, after record lows of 19.35 in recent weeks amid negative sentiment at home and across global emerging markets. While some traders taking long positions in the futures markets increased bets on the Rand against the Dollar, the currency remains under pressure, having weakened from 18.37 earlier in the week. We see the Rand range-bound at current levels as the local economy struggles with the effects of coronavirus.
IMF warning to Kenya leaves CBK fighting depreciation
A week after approving a $739 million emergency funding package (we wrote about this here: Recovery for Rand, Shilling amid Ease of Lockdown), the IMF left the Central Bank of Kenya shoveling dollar reserves to prop up the currency as it increased the nation’s risk of debt distress from moderate to high. When Kenya went into lockdown, the government cut VAT and income taxes in a bid to support the economy. Loss of revenue leaves Kenya more challenged, the IMF cautioned. The CBK responded by selling undisclosed amounts of dollars, leaving the Shilling just 1% weaker at 107.10 per dollar. Given staunch efforts from the regulator to prevent drastic depreciation, we foresee the Shilling maintaining current levels.
Delay to Uganda election eases pressure on Shilling
Despite political unease over the potential postponement of upcoming elections to 2021 due to COVID concerns, pressure on the Shilling has reduced with less risk from the typical trends of capital flight and increased spending. The Shilling strengthened to 3785 per dollar from 3795 after the Central Bank of Uganda mopped up excess liquidity to the tune of 690 billion Shillings. Amid reduced demand from importers, we foresee the currency maintaining these levels in the coming days.