Accra, November 16, 2017//-The 2017 version of Ecobank Research’s Fixed Income, Currency and Commodities (FICC) Guidebook, which provides expert knowledge and analysis on African markets for investors and businesses, has revealed that African currencies will continue to face downside pressures.
It explained that further US rate hikes would be supportive of the USD, but negative for African currencies.
“This is in addition to domestic challenges in the region, the high import dependency of countries and rising political risks; these factors will undermine anticipated gains in foreign exchange (FX) inflows”.
Although official intervention alongside an improved fundamental picture with a positive external balance will provide some respite for the Nigerian Naira (NGN), the multi-tiered exchange rate regime leaves the exchange rate susceptible to downside risks in the event of sudden shocks to oil prices and oil production.
While, Ghana Cedi (GHS) is likely to weaken at a moderate pace, although rising commodity prices and production (mainly oil) should provide some support. Resilient gold prices will also support the GHS, especially in the wake of growing tensions over US-North Korea relations, uncertainty over US-China trade relations, rising political tensions in the EU and uncertainty over President Donald Trump’s policies.
However, as Ghana is a net oil importer, gains in export receipts will be undermined by higher oil import costs, sustaining high demand for FX, the research said.
Similarly, Kenyan Shilling (KES) is also set to weaken on the back of Brexit-related concerns in one of its key export market, the UK, political uncertainties and high corporate demand for FX.
XOF/XAF will continue to mirror developments in the EUR, given their currency peg to the EUR. Recent EUR strengthening and hence XOF/XAF strengthening will continue to be supported by improving sentiment in the eurozone; however, such gains will be tempered by downside risks associated with Catalan’s secession and longer-than-expected tapering.
Nonetheless, improved EUR performance has raised concerns about a XOF/XAF devaluation; we are more bias towards a XAF devaluation as CEMAC is yet to adjust to the oil price collapse.
African Eye Report
