Eyes on IATF for $40bn boost; Kenya Shilling at new low as reserves climb; Naira stable at strongest since September: AZA FX Week Ahead


Eyes on IATF for $40bn boost to African trade 
The second Intra-African Trade Fair (IATF) kicked off in South Africa this week, an event that is expected to attract $40bn worth of trade and investment into the continent. The trade fair showcases the African Continental Free Trade Area (AfCFTA) as the world’s largest single market for goods and services – covering 54 of the 55 African Union member states (with Eritrea yet to sign the agreement). With business and political leaders gathered in Durban, the IATF represents a test of AfCFTA’s mission to spur intra-African trade and accelerate development and economic growth across the continent. 

Naira stable at strongest level since September
The Naira was trading at 545 to the dollar on the unofficial market this week, maintaining its strongest level since early September as demand for the greenback continues to ebb. Nigeria’s FX reserves declined to $41.5bn this week, a drop of around $100m, according to the central bank’s 30-day moving average benchmark. Inflation also fell for a seventh consecutive month, with prices rising by 15.99% in October compared to 16.63% a month earlier, driven lower by falling food costs. With weaker dollar demand unlikely to change, we expect the Naira to remain around the 540 handle in the coming week.

Ghana tourism pick-up insufficient to bolster Cedi
The Cedi weakened against the dollar this week, sliding to 6.126 from 6.11 at last week’s close as inflation pressures continue to grind. Tourism has started recovering from its coronavirus-induced slump, rising to just over 350,000 domestic travellers in the first half of the year compared to roughly 200,000 in the whole of 2020 following a national promotion campaign. A further pick-up in international tourism should bring more FX inflows into the country longer term. For now, however, despite the Bank of Ghana continuing to intervene in the market through its forward auctions, we expect downward pressure on the Cedi to continue in the week ahead.

Rand at 8-month low amid dollar strength and power cuts
The Rand slumped to its lowest level against the greenback since early March on Thursday, trading at 15.50 compared to 15.35 at last week’s close, owing to a stronger dollar and concern about the long-term implications of the country’s ongoing power issues, with this week’s rate decision steering direction over the coming days.

Egyptian Pound steady as economic outlook improves
The Pound was little changed against the dollar this week, trading at 15.68/15.76. The Arab Monetary Fund said Egypt’s GDP is expected to grow 5.4% next year, with the country’s economy being less impacted by the coronavirus pandemic in part because the government’s economic reforms have improved its resilience. We expect a stable Pound over the next week.

Kenyan Shilling at new record low while reserves climb
The Shilling weakened to a fresh record low against the dollar this week, trading at 111.90/112.10 from 111.70/111.90 at last week’s close, with increased import activities in sectors such as energy ensuring demand for the greenback continues to outweigh supply. We see the currency stabilising at these levels given the increase in Kenya’s FX reserves, climbing to $9.09bn from $9.07bn. This is most likely a boost from remittances, which totalled $337m in October—an 8.9% increase on September’s inflows. 

Ugandan Shilling pressure to ease on investment inflows
The Shilling depreciated to 3530/3540 against the dollar this week from 3525/3535 at last week’s close, driven by interbank and corporate demand for hard currency. Activity in the Ugandan capital Kampala slowed after a bomb in the city killed three people and left several others wounded. The IMF stated in a recent report that the Shilling is moderately overvalued, having gained 3.5% against the dollar this year—making it Africa’s fifth-best performing currency. However, we expect the Shilling to remain stable short term on the back of expected investment inflows including a £2bn loan for an industrial park offered by UK Export Finance (UKEF), which is UK’s export credit agency. 

IMF cash to keep Tanzanian Shilling steady
The Shilling was steady this week, trading between 2294/2310 after the IMF approved a $372m rapid credit facility disbursement to Tanzania to curb the impact of the Covid-19 pandemic and support its economic recovery. Part of those funds will be used to finance the country’s response plan to mitigate the health and social effects of the pandemic. We expect the Shilling to remain stable in the coming week with dollar demand from the manufacturing and energy sectors to be matched by supply.