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Africa FX recovery as business reopens; “Risk on” Rand strongest since March

Recovery from Kenya to South Africa as businesses reopen

A cross-continental easing in restrictions on economic activity – in some cases spurred by protests, such as in Senegal – furthered the recovery in currencies last week from South Africa to Kenya. While a heavy economic toll continues, we see the reopening of businesses and markets, helped by easing of monetary and fiscal policies, steadying or strengthening currencies near term.

Import pressure on Naira calmed by higher reserves and oil

Importers settling pending obligations with the resumption of business activities put pressure on the Naira in the parallel market, trading at 447 per dollar from 440. On the other hand, the official spot rate stayed at 388 and 5-month forward rates edged stronger to 454, compared with 522 in April. With support from the IMF’s $3.4 billion rapid finance instrument, Nigeria’s dollar reserves have climbed to $36.57 billion, adequate to support the local currency from current pressures. With the recovery in oil prices as a continued positive indicator for the economy, we foresee sustained levels in the coming days.

“Risk on” spurs Rand rally to strongest since March

Continued recovery lifted the Rand to 16.90 per dollar, the strongest level since March. This has been supported by “risk on” momentum as economies reopen around the world and at home, coupled with dollar weakness amidst widespread US protests against the murder of George Floyd as well as tensions with China. Against the backdrop of economic gloom over negative GDP growth, there is incremental optimism for recovery, and we foresee further improved levels for the Rand in the coming days.

Reduced curfew and farming exports support Shilling

Kenya’s government announcement of a reduced curfew fanned expectations for resumption of economic activity. The Shilling strengthened from 106.90 to 106.10 per dollar last week, supported by dollar inflows mainly from agricultural exports. With export activity improving, we maintain our positive outlook for the Shilling in the coming days.

Ugandan support for MSMEs steadies currency outlook

Dollar inflows from tea, coffee and gold exports outstripped demand for hard currency from importers, spurring slight appreciation in Uganda’s Shilling from 3785 to 3758 per dollar. While Uganda is set to lose $1.6 billion in tourist revenue and faces a sharp decline in the annual $1.3 billion of diaspora remittances, we expect a steady Shilling in the near term at least, with a positive outlook on government assistance to MSMEs and other businesses supporting economic growth.

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