The currency in Africa’s copper producer Zambia, the Kwacha is bearing the brunt of souring sentiment given the ailing fiscals. Zambia’s reserves are positioned at a decade low representing 1.6 months of import cover at $1.45 billion as at Jan 2019 as reported by its central bank. Moody’s was also on record hinting a lowering of Zambia’s risk assessment on the back of deteriorating credit risks.
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Against the US dollar, the Kwacha shaved value to close 25 April at K12.65 from week start levels of K12.3. This trajectory has alarmed analysts as it defies the usual April appreciating trend when most corporates are selling dollars to raise Kwacha funding for corporation taxes etc. Zambia still grapples with the task of securing a bail out package with the IMF which markets are weary of pricing in hence the asset sell off pressure. Secondary market activity show more disinvestment appetite by off shore players who are opting to buy dollars as a safer haven currency in readiness for repatriation and this is exacerbating dollar demand. The Bank of Zambia has been in the market for dollars very often in a quest to shore up reserves and that is another driver of dollar demand.
As though this is not enough the global dollar environment is very strong, flirting with 2 year highs as evidenced by the DXY hovering at 98.22 against a basket of 6 major currencies. Sentiment is weak globally which makes riskier assets unattractive and as such flows will point to gold and the United States dollar. The US economy is growing stronger and GDP data will reveal what Q1 performance was and should it print higher than analysts estimates, emerging market and frontier currencies will take more heat.
As at 09.01am in Lusaka the dollar was trading for K12.8.