Rally halted in African FX as global markets slide

African currencies ended weeks of gains in tandem with declines across global markets on concern of a coronavirus second wave impeding recovery in the world’s major economies. Notable in recent weeks has been a relative advance for Kenya, which the IMF reported as overtaking Angola as the third-largest economy in sub-Saharan Africa. Kenya’s economy is projected to grow by 1% this year vs. 1.4% contraction for Angola, Africa’s second-largest oil producer. While Kenya’s Shilling is down 3.8% against the dollar for the past three months, Angola’s Kwanza has lost 22%

Reserves and stimulus support Kenyan Shilling

While the Kenyan shilling lost ground from 106.10 last week to as low as 106.85 amid increased dollar demand from businesses resuming activities, the currency recently headed back to 106.45. These levels are supported by an increase in the Central Bank dollar reserves by 100 billion shillings to $9.26 billion, equivalent to 5.56 months of import cover. The government tabled a 2.7 trillion shilling ($25 billion) 2020/2021 budget including a 35 billion shilling ($330 million) stimulus package to buoy the economy. With a reduction in daily curfew hours and increased economic activity spurring import revenue, we see current levels sustaining in coming days.

Rate cut to record low weakens Ugandan Shilling

Uganda’s 100 basis points rate cut to 7%, the lowest level since the Central Bank introduced its policy benchmark in 2011, sent the Shilling weakening to 3768 per dollar from 3721 earlier last week. The Central Bank lowered its forecast for economic growth to 2.5-3.5% this year vs. an April forecast of 3-4%. With the slow reopening of the economy and increased dollar demand from merchandise importers, we expect slight pressure on the Shilling in the near term.

Naira declines may reverse on support from higher oil

After slight declines in the parallel market to 450 per dollar from 448 last week, we see scope for sustained levels or gains in the coming days after the recent recovery in oil, which contributes to about 90% of Nigeria’s foreign exchange revenue. Higher prices enabled Nigeria’s House of Representatives to pass a 10.8 trillion Naira budget, up from 10.59 trillion Naira tabled in December, based on $28 a barrel oil.

Rand slips from 11-week high, further pressure likely

The Rand’s rally to an 11-week high ended with the currency sliding from 16.40 per dollar to 17.15 amid concern that South Africa’s spike in coronavirus cases will prolong and deepen the recession. We project further pressure in the coming days.

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