AZA Finance FX Week Ahead: Distressed Ghanaian bonds knock Cedi

The launch of Africa’s new cross-border payment system—the Pan-African Payment and Settlement System, a key pillar of the African Continental Free Trade Area—is now live following a successful pilot in the West African Monetary Zone.

The new system will enable real-time cross-border payments without having to settle via the US or European banks, saving the continent about $5bn in offshore clearance and transaction costs, said the African Export-Import Bank, which is behind the project. Lower transaction costs should help boost trade, a positive for Africa’s FX market.

Naira shrugs off inflation uptick

The Naira held firm against the dollar this week, trading at 570 on the unofficial market. Nigeria’s FX reserves fell to $40.4bn from $40.5bn, resuming the downward trend having last week briefly arrested six straight weeks of declines.

Inflation also climbed for the first time in eight months, rising to 16.63% in December from 15.5% a month earlier.

The Nigerian senate this week removed a clause in the country’s electoral act amendment bill that would have made direct primaries a mandatory requirement for political parties, a proposal that President Muhammadu Buhari had shot down in December.

Buhari had argued that it should be up to political parties if they want to elect their candidates via direct or indirect primaries. Given current levels, we expect the Naira to remain stable in the coming weeks.

Distressed Ghanaian bonds knock Cedi

The Cedi sank to as low as 6.253 this week, from 6.189 at last week’s close, as Ghana’s dollar-denominated bonds dropped further into the distressed territory, with 13 of the nation’s14 dollar bonds now trading with spreads wider than 1,000bps as investors fret about the country’s ability to re-finance its debt when the US Federal Reserve starts raising benchmark rates.

Inflation also continues to weigh, with fuel prices 3% higher than at the start of the year. The currency was last at 6.14 levels, recovering on the back of higher gold and oil prices and sustained Bank of Ghana interventions. We expect the currency to range between 6.20 and 6.25 in the near term.

Rising fuel costs weigh on Rand

The Rand depreciated against the dollar this week, sliding to 15.52, having strengthened to 15.27 towards the end of last week.

The decline followed a spike in annual consumer price inflation to 5.9% in December, the highest annual increase since March 2017, driven in part by higher petrol and diesel prices amid rising crude costs and supply constraints in the market.

Meantime, the People’s Bank of China signaled further support for the Chinese economy—a potential boost for South African exports and South Africa’s economy at large. We expect the Rand to strengthen towards 15.15 on the back of increased risk appetite in the global economy in the coming week.

However, towards the beginning of February, we expect to see a reversal towards 15.50, based on technical analysis and the upcoming budget speech.

Egyptian Pound steady on upbeat exports

The Pound was broadly unchanged against the dollar this week, trading mostly with a 15.7 handle.

Egyptian President Abdel Fattah El Sisi this week raised the minimum national monthly wage to EGP2,700, a 12.5% increase—the third time he has lifted pay rates since taking office in 2014. Egypt’s non-petroleum exports hit $7.7bn in the third quarter of 2021, a jump of 27.1%.

We don’t expect the Pound to deviate too far from the 15.7 handles in the near term given the overall positive outlook for the country.

Kenyan Shilling hits fresh dollar low

The Shilling slumped to another record low against the dollar this week, dropping to 114.09 from 113.82 at last week’s close.

Dollar-denominated bonds

While the Tourism Research Institute showed that tourist numbers increased by 53% in 2021 to more than 870,000—up from just under 568,000 a year earlier—travel restrictions are constraining real recovery. Kenya’s Civil Aviation Authority extended a suspension on all inbound flights from the Emirates until next week in response to Dubai’s ongoing travel ban for East African nations.

Meanwhile, Kenya’s central bank this week resumed sales of securities to entice foreign currency inflows. If these sales are sustained we would expect the Shilling to recover towards the upper band of 113 in the coming week.

Ugandan Shilling slides as pump prices jump

The Shilling weakened against the dollar this week, trading at 3544 from 3536 at last week’s close.

Fuel prices jumped 50% in parts of Kampala as tankers were held up at the border with Kenya amid mandatory Covid-19 tests for drivers. Uganda and Tanzania this week also took steps to remove non-tariff barriers between the two countries in a bid to ease trade, a significant milestone to foster deeper bilateral cooperation.

We expect a continued increase in coffee exports from Uganda as restrictions hinder other pandemic impeded countries such as Vietnam. With this in mind, we expect the Shilling to stabilize with resistance at the 3550 handles for the coming days.

Tanzanian Shilling stable amid vaccine push

The Shilling was broadly unchanged against the dollar this week, trading at just under 2308. Annual inflation hit 3.7% in 2021, a marginal increase from 3.4% in 2020, according to Tanzania’s National Bureau of Statistics.

In a boost to the country’s target of vaccinating 60% of its population, Tanzania this week received more than 1.6 million additional Pfizer BioNTech vaccine doses from the US government, donated through the Covax scheme.

We expect the Shilling to continue to hold stable between 2305 and 2315 in the near term as the tourism sector continues to build recovery following the rollout of the COVID-19 vaccines and the relaxation of containment measures.