Nigeria money exchange ban sinks Naira; Fed tapering signals more pressure for Rand; Nairobi’s status as regional hub boosted: AZA FX Week Ahead
Nairobi’s status as regional hub buoyed by UK investment
Kenya’s ambition to build Nairobi into a regional financial hub and compete with Dubai as a channel for regional tradereceived a boost this week after the country signed a co-operation agreement with the UK that could unlock at least $2bn of deals over the next five years. The agreement includes creating closer links between the London and Nairobi stock exchanges and making it easier for businesses to incorporate in Kenya. The UK’s foreign secretary Dominic Raab on Tuesday also announced a package of investments in Kenya worth £132m, including plans to build affordable green homes, provide clean energy to households and boost manufacturing.
Nigerian money exchange ban sinks Naira
The Naira depreciated against the dollar on the parallel market to 525 from 504 at last week’s close after the Central Bank of Nigeria banned the supply of dollars to the country’s bureau de change (BDC) operators, citing various infringements against Nigeria’s monetary policies and accusations that they have been facilitating illegal financial flows and money laundering. Meantime, the central bank on Tuesday held interest rates steady at 11.5% given that inflation has started falling, though the bank said more action would be needed to help maintain that downward trend. We expect the Naira to remain under pressure in the coming days as the ban on the sale of forex to BDCs reduces liquidity.
Cedi poised to weaken further this year
The Cedi slipped to 5.97 against the dollar from 5.92 at last week’s close as liquidity tightened amid increased demand for the greenback. While the biweekly Forex Forward auction has helped to temper dollar supply constraints and prevented a sharper depreciation of the currency, based on current trends, we expect the Cedi to continue weakening towards 6.03 to the dollar by yearend.
Fed tapering signals more pressure on Rand
The Rand was little changed this week, trading at 14.85 to the dollar compared to 14.84 at last week’s close, with the recent violence in the country subsiding after troops restored order to the streets. The currency hit a low of 14.97 at the beginning of the week as risk appetite took another hit amid concerns of the fast-spreading Delta Covid-19 variant. Despite the impact of the pandemic and the recent unrest, the International Monetary Fund’s World Economic Outlook raised South Africa’s growth forecast this year to 4% from 3.1% on the back of positive momentum in the first quarter (expanding by 4.6%). However, we expect the Rand to weaken further with the US Federal Reserve signalling it is getting closer to tapering its monetary stimulus programme.
Egypt Covid rates at lowest since start of pandemic
The Pound stumbled slightly this week, trading at 15.65/15.75 to the dollar compared to 15.62/15.72 at last week’s close. A Reuters’ poll published Tuesday showed that analysts expect Egypt’s economy to grow by 5% in the current fiscal year to the end of June 2022, with inflation expected to hit 6%. Meantime, Egypt’s efforts to combat Covid-19 through vaccines and restrictions on business operating hours has seen infection rates fall this week to the lowest level since the start of the pandemic. Against that backdrop, we expect the Pound to stabilise over the coming week.
Kenyan central bank keeps rates steady
The Shilling weakened against the dollar this week, trading at 108.5/108.7 compared to 108.1/108.3 at the end of last week amid increased importer demand for the greenback, with the country’s foreign exchange reserves (this week standing at $9.37bn, adequate for 5.73 months of import cover) helping prevent a steeper decline. The central bank on Wednesday held its key lending rate at 7% for the ninth straight policy decision meeting, maintaining its accommodative stance to help the economy recover from the coronavirus pandemic. Optimism from the UK’s £132m investment in a raft of Kenyan projects (see above) should lead to a stable Shilling over the coming week.
Uganda approaches end of 42-day lockdown
The Shilling appreciated to 3547/3557 against the dollar this week from 3550/3560 at last week’s close, strengthened by month-end dollar inflows from commodity exporters. President Yoweri Museveni is expected to update Ugandans on Saturday on the status of the 42-day lockdown, which is due to be lifted at the end of this month. We expect the Shilling to continue to gain support from coffee exports and diaspora remittances, which should offset month-end dollar demand from importers.
Tanzania makes progress on Covid vaccines
The Shilling was unchanged this week, trading at 2319 against the dollar. Tanzania’s Chinese embassy on Wednesday said China would donate 100,000 doses of its Sinovac coronavirus vaccine to help contain the spread of Covid-19 on the Tanzanian islands of Zanzibar. The country has received more than one million doses through the global COVAX programme.
President Samia Suluhu Hassan, who on Wednesday publicly took her first dose of the Johnson & Johnson vaccination, has set a target to inoculate 35 million people, or 60% of the population. The government this week called on its overseas ambassadors to market the country’s investment opportunities in areas such as agriculture and other merchandise. We expect the Shilling to gain as rollout of further vaccines to control the virus helps to spur economic recovery.