Devises

Biden presidency rekindles Africa optimism; CBN support steadies Naira; Kenyan debt relief: FX Week Ahead

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Biden presidency rekindles Africa optimism 

Joe Biden’s inauguration brings renewed optimism for Africa, with key appointments and friendlier policies set to strengthen cooperation between the US and African nations. President Biden’s administration will help drive support from G-20 countries for debt relief, restructuring, and deferment for low-income counties, mostly in Africa, and spur concessional finance from the IMF and other institutions. Biden’s team can also be expected to support key trade initiatives including the African Continental Free Trade Area, and renewal of the US African Growth and Opportunity Act (AGOA), which provides 38 eligible sub-Saharan African countries with duty-free access to the U.S. market for over 1,800 products, and needs to be extended beyond the current end date of 2025. Beyond economic relations, we anticipate greater engagement in the region’s security issues, particularly in combatting Islamist insurgencies in Nigeria and Cameroon.
 
CBN support steadies Naira before month-end rush

The Naira traded steadily, at 475 levels in the parallel market, as the CBN maintained sales of dollars to Bureaus de Change to improve liquidity in the FX market. The central bank’s foreign currency reserves climbed to $36.46 billion on Jan. 19 from $36.22 billion a week earlier. Heading into next week, we expect slight downward pressure as importers and manufacturers seek dollars to meet end-of-month obligations.


Rand strengthens on Yellen stimulus projections
The Rand strengthened against the dollar during the week, recovering to levels of 14.90, driven by increased risk appetite and a weakening dollar, as Janet Yellen’s appointment as US Treasury Secretary stoked expectation of increased stimulus spending. With the South Africa Reserve Bank poised to hold its Repo rate, currently at 3.5%, we project the Rand to trade within the current range in the near term.

 

Kenya debt relief may stabilize Shilling after tumble
Kenya’s Shilling weakened against the dollar to 109.90/110.40 amidst rising demand for foreign exchange by importers and investors, and a decline in inflows from tourism and horticulture, the country’s leading foreign exchange earners. It’s the second time the currency has broken the Ksh110 mark in as many months. We expect to see the Shilling stabilize in coming weeks on reduced dollar outflows. The Paris Club agreed to agreed to delay payment of about Sh32.9 billion to help the country tackle the Covid pandemic. Kenya is also in talks with China on a debt-service suspension deal, in addition to a Sh40.6 billion debt waiver from non-G20 countries to use revenues for economic recovery.


Ugandan Shilling in balance after troubled election
Uganda’s Shilling strengthened to levels of 3695/3705 to the dollar, from 3700/3710 last week, as business activity resumed after the election. The currency’s outlook remains uncertain, however, with presidential challenger Bobi Wine, who has been under house arrest, calling for international sanctions as his National Unity Platform rejects the election result, citing fraud. 


Lower inflation in Tanzania helps stronger Shilling 
Tanzania’s Shilling strengthened against the dollar to levels of 2295/2309.8 (2302.4) from 2314/2324(2319) a week ago, as the National Bureau of Statistics reported a decline in the average inflation rate to 3.3% in 2020 from 3.4% in 2019. We foresee a stable Shilling in the week ahead as dollar inflows from foreign investors helped by government concessions on minerals and natural resources cushion the currency against increased appetite for FX from SMEs and manufacturers.