Nigerian spenders emerging from lockdown means pressure for Naira
Last month we warned of false stability in the Naira as Nigerians on lockdown meant demand was artificially low for dollars, both for consumer spending and production imports. As we anticipated, the easing of lockdown measures last week resulted in a resumption of dollar demand, weakening the Naira beyond 445 in the parallel market and 394 levels for the official rate. This reversed gains earlier in the week as the Naira traded at 430 in the parallel market and 387.37 in the Investors and Exporters window, boosted by the CBN selling foreign exchange to commercial banks to the tune of $100 million per week and disbursement of the IMF’s $3.4 billion Rapid Finance Instrument. We foresee sustained weakening pressure for the Naira given the decline in CBN reserves to $33.44 billion from January levels of $38.53 billion, combined with the shortage in supply of dollars to various segments of the economy and increased exits by international investors from local portfolios.
Oil bounce benefits importers too as confidence steadies Rand
The Rand is testing its strongest rate against the dollar in five weeks, appreciating 1.3% so far this month to 18.34 from 18.58. Amidst an easing in South Africa’s lockdown, we see the Rand’s recovery being related more to its position as one of the more liquid benchmarks of global emerging market risk. The currency’s strengthening correlates with relief in global markets from eased tensions between China and the US, the reopening some of the world’s major economies, and – significantly for global emerging market risk appetite – the slow but steady recovery in oil prices. We expect the Rand to sustain current levels in the immediate term as the country gradually gets back to work.
IMF emergency relief for Uganda supports stable Shilling
Approval by the IMF of a $491.5 million disbursement to cushion the economy and health sector against the impact of coronavirus is helping to steady the Ugandan Shilling, which appreciated to 3,795 per dollar from 3,810 last week. About 70% of the IMF’s funds will be channeled as buffers to the country’s reserves to compensate for reduced export revenues and FDI. With the easing of the country’s lockdown opening up some key economic sectors, we foresee the Shilling sustaining current levels in the coming days.
Expect pressure for Kenya’s Shilling as dollar demand resumes
Dollar inflows from remittances and the horticultural sector combined with the IMF’s approval of a $739 million emergency financing package drove Kenya’s Shilling climbing to 106.10 per dollar from 107.30 last week. The Shilling has been helped by minimal demand for dollars from importers, which we anticipate resuming as businesses slowly reopen. Pressure on the currency was underlined by Moody’s cutting its outlook on Kenya’s credit rating to negative on concern that high borrowing costs appear unsustainable for the economy.
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