US dollar ravaging Africa’s currencies

South Africa’s rand closed the year 35 per cent weaker against the  US dollar, exchanging 15.6510 per dollar.

It was a new 2-1/2 week low as demand for the greenback and thin-trade ahead of the long New Year’s Day weekend put the currency on the backfoot. Besides,  Africa’s most advanced economy was battered by severe electricity shortages, drought and the shock removal of the finance minister in the past 12 months.

The rand had even sunk to a record-low 16.0485 shortly after the shock sacking as investors balked at the appearance of political interference in the Treasury.

The tale of woes was not exclusive to the rand as most African currencies also came under pressure, according to Reuters.

The Kenyan and Zambian currencies are expected to come under pressure in the coming week, due to increased demand for the U.S. dollar following the Christmas and New Years holidays.

KENYA

The shilling is forecast to weaken next week due to an expected increase in dollar demand from the manufacturing and energy sectors.

The shilling was trading at 102.40/50 on Thursday afternoon, weaker then last Thursday’s close of 102.25/35.

“I have a bias for a weaker shilling. Next week, demand has to pick up. Some companies which closed down for the year which are expected to open on Monday, especially manufacturing, oil,” said a trader at one commercial bank.

ZAMBIA

The kwacha is likely to come under pressure versus the dollar next week due to increased demand for the green back after the holidays.

At 0701 GMT on Thursday, commercial banks quoted the currency of Africa’s second-largest copper producer at 10.8999 per dollar from a close of 10.8603 a week ago.

“The kwacha is forecast to trade with a slightly bearish tone in upcoming sessions, weighed down by stronger dollar demand from importers,” Zambia National Commercial Bank analysts said in a note.

NIGERIA

Nigerian naira is seen flat on both the parallel and official interbank markets next week, on weak dollar demand and as businesses gradually wind down operations to prepare their books for their financial year ending.

The local currency traded at 266 to the dollar on the parallel market on Wednesday, from 272 a dollar last Thursday and a low of 280 to the dollar by last Friday. The currency traded at 199.5 to the dollar on the official market, some 1.26 percent weaker than the central bank’s peg rate.

“The naira should trade flat next week because of weak demand from end users and businesses closing down operations for the year end,” a trader said.

The Nigerian money market reopens on Tuesday.

EGYPT

Egypt’s central bank kept the pound steady at 7.7301 pounds to the dollar at its official foreign currency auction on Thursday, and currency held its weaker rate on the black market as well.

Egypt, which depends on imported food and energy, is facing a dollar shortage and mounting pressure to devalue the pound. The central bank surprised markets when it strengthened the pound on Nov. 11 by 20 piasters against the dollar.

On Thursday, it sold 39.4 million dollars at a cut-off price of 7.7301 pounds to the dollar, unchanged from Tuesday.

The official rate is still far from the black market, which was around 8.57 pounds to the dollar on Thursday, almost unchanged from Tuesday’s rate of 8.58.

The country has been starved of foreign currency since a popular uprising in 2011 ousted autocrat Hosni Mubarak and drove tourists and foreign investors away.

Egypt’s reserves have tumbled from $36 billion in 2011 to$16.4 billion, and the country has been rationing dollars through weekly dollar auctions to banks, keeping the pound artificially strong.

In February, the central bank imposed capital controls, limiting dollar-denominated deposits to $50,000 a month in an attempt to fight the black market. The move caused problems for importers, who could no longer source their foreign currency needs.