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Looting plunges Rand amid mass army mobilization

The Rand tumbled to 14.51 against the dollar from 14.24 at last Friday’s close after days of violence and looting following former President Jacob Zuma’s jailing last Wednesday for failing to appear before a commission investigating state corruption. The government has responded to the destruction by deploying 25,000 troops to the streets, the most since the end of the apartheid era. The Rand will remain under pressure as long as such unrest persists, with any longer-term potential boost from the court’s implementation of constitutional democracy firmly on hold.

Central bank interventions to support Naira
The Naira edged stronger on the official NAFEX window to trade at 411.50 to the dollar from 411.75 at last week’s close as market liquidity improved. The Naira also held firm on the parallel market, unchanged at 505 to the dollar. Despite higher oil export prices, Nigeria’s economic recovery remains sluggish following last year’s recession, with GDP expanding by just 0.51% in the first quarter of 2021, a modest improvement on the 0.11% achieved in the previous three-month period. We expect the Naira to strengthen slightly in the near term supported by interventions from the central bank.

Ghana looks to the central bank to stem Cedi depreciation
The Cedi remained under pressure in recent days, albeit losing less ground than in previous weeks, trading at 5.92 to the dollar versus 5.91 last Friday. This week’s decline came amid increased demand for the greenback from businesses to pay dividends to shareholders outside of Ghana, as well as businesses seeking to finance their import obligations as governments around the world continue to open up their economies after months of COVID-19 restrictions. The Bank of Ghana appears committed to using all the levers at its disposal to prevent a drastic depreciation, so we expect the pressure to ease on the Cedi in the near future.

Egyptian Pound steady ahead of Eid al-Adha holiday
The Pound was trading at around 15.69 to the dollar this week, broadly in line with last week’s close. The Egyptian Cabinet’s Information and Decision Support Center (IDSC), a think tank, expects the country’s economy to expand 4.4% during the current fiscal year, supported by an increase in global demand and domestic energy projects. A pickup in tourism activity, exports and other service sectors will also boost economic growth, the IDSC said. With the four-day Eid al-Adha holiday taking place from Monday evening until next Friday, we expect a slowdown in economic activity due to the closure of banks and other financial institutions.

Kenya’s current account deficit widens
The Shilling slipped to 107.95/108.05 from 107.85/107.95 at last week’s close as a result of increased demand for dollars from importers. A report from Kenya’s central bank showed the current account deficit widened to 5.5% in the 12 months to May compared to 5.2% in the same period last year as the impact of COVID-19 crimped economic activity. Kenya’s main sources of foreign exchange such as tourism and agricultural exports were significantly impacted over the past year by the pandemic, reducing dollar inflows. Meantime, usable foreign exchange reserves increased slightly this week to $9.59 billion from $9.49 billion seven days earlier. We expect the Shilling to stabilise over the coming week with those reserves cushioning the currency from volatility.

Coffee exports boost Ugandan Shilling
The Shilling rebounded this week, trading at 3535/3545 from 3550/3560 at last week’s close as inflows from commodity exports such as coffee helped to offset the impacts of the ongoing COVID-19 lockdown. The Uganda Coffee Development Authority (UCDA) said the country’s coffee exports hit a record high of $59 million in June, boosted by a rise in global coffee prices. We expect the Shilling to hold steady at current levels over the coming week as importer demand for dollars continues to dry up amid subdued economic activity caused by the lockdown.

Tanzania inflation climbs to more than 12-month high
This week, the Shilling was unchanged at 2314/2324, supported by export inflows from agricultural commodities such as coffee. The Bank of Tanzania auctioned its first bond of the fiscal year last week, a 15.49% 20-year treasury bond that was around two times oversubscribed. Inflation increased to 3.6% in June from 3.3% in May, its highest level in more than a year. We expect the Shilling to remain steady over the coming week, supported by coffee and other export inflows.

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Issued by AZA Finance. 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 Finance cannot be held responsible for any losses of whatever nature sustained as a result of action taken based on comments contained in this publication.

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