Pressure on record-low Naira to continue as Cedi weakens further

Angola earns rating uplift as economy poised to end five years of contraction
Angola this week saw Moody’s raise its credit rating one level to B3 from Caa1, six places below investment grade, supported by the country’s improved fiscal position and rising oil prices. It was the first time Moody’s has upgraded Angola since first rating the country in 2015, reversing the one-notch downgrade last September to Caa1. Back in January, Angola secured three years of debt relief from China—which accounts for almost half of the African nation’s external borrowing—before the IMF in June approved $722 million in additional financing through its Extended Fund Facility programme. The IMF forecasts that Angola’s economy will expand this year for the first time since 2015.

Pressure on record-low Naira to continue
The Naira weakened to a fresh low against the dollar, trading at 557 on the unofficial market compared to 540 at last week’s close. The continued stress comes as increased demand for the greenback collides with low supply, exacerbated by the Central Bank of Nigeria suspending the sale of dollars to the country’s bureau de change operators. The CBN has tried to counter this with increased FX sales to domestic banks, though it has not been adequate to meet demand. Meanwhile, currency speculators have been taking advantage of the disparity between the official NAFEX window rate—currently trading at about 411—and the parallel market. We expect the Naira to remain under pressure in the coming days with the supply and demand mismatch unlikely to change.

Cedi poised for further weakness as dollar demand persists
The Cedi depreciated against the dollar this week, sliding to 6.04 from 6.02 at last week’s close, with dollar demand continuing to outweigh supply as economic activity increases in the country. A $75 million FX auction last week gave the local currency a temporary reprieve before increased dollar demand resumed the pressure. We expect those market dynamics to persist and the Cedi to remain strained in the coming days.

Business confidence data to drive Rand outlook

The Rand weakened against the dollar this week, declining to 14.39 from 14.20 at last week’s close after data showed the country’s retail sales fell in July, underpinning concerns that the recent domestic unrest and COVID-19 restrictions are likely to have impacted third-quarter growth. JPMorgan also warned that the currency remains prone to further weakness, in part because South Africa’s key terms of trade are starting to look less favourable, adding to the downbeat sentiment over the past week. How traders continue to react to this week’s business confidence numbers should dictate the Rand’s direction over the coming seven days.

Egyptian Pound to remain steady on export, investment inflows
The Pound was stable against the dollar this week, trading flat at 15.68/15.76, shrugging off news that inflation rose in August to 4.5% from 3.6% in July, according to Egypt’s central bank. We expect the Pound to continue maintaining its current levels over the coming week, supported by inflows from rising exports—including goods such as plastics and ready-made clothes—and foreign investment into the country.

FX reserves to prop up Kenyan Shilling 
The Shilling was steady against the dollar this week, unchanged at 109.90/110.10 as demand for the greenback was matched by FX inflows. The Shilling was also supported by the issuance last week of Kenya’s infrastructure bond, which raised KES 106.8 billion. The Central Bank of Kenya said its foreign currency reserves increased to roughly $9.63 billion in the week to September 9—sufficient for 5.89 months of import cover—from $8.88 billion during the previous seven days. We expect those reserves to shield the Shilling against market pressure in the coming week.

Dollar demand to maintain pressure on Ugandan Shilling 
The Shilling depreciated slightly this week to 3532 from 3528 at last week’s close amid increased dollar demand from corporates. The Bank of Uganda’s research director this week said the amount of money in circulation in the country had grown by just under UGX 266 billion between June and July, indicating an increase in economic activity. That will likely spur continued dollar demand and lead to a mild weakening of the Shilling over the next seven days.

Tanzanian gold receipts to offset COVID impacts
The Shilling was stable against the dollar this week, trading at 2314/2324 as demand for the greenback was matched by supply. On Monday, the Tanzanian central bank’s monetary policy committee agreed to the bank’s proposal to maintain liquidity easing monetary policy over the next two months to support credit expansion to the private sector. Tanzania’s statistics agency also reported that inflation was steady in August at 3.8%, unchanged from July. We expect the Shilling to remain stable this coming week as inflows from exports including gold and agricultural products, such as cotton, offset the economic impacts of COVID-19 and the reduction in tourism numbers.

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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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