Currency in Africa’s second largest copper producer Zambia, the Kwacha, crossed its historical 100 day moving average of 12.602 rallying to a 3 month high of 12.525 for a unit of dollar. These levels were last seen earlier in April this year. Fueling the bulls on 10 July was the uptick in demand for local currency to meet taxation obligations by corporates.
“Mid month and provisional taxes are due at a time the market is net short Kwacha as such the local unit is being supported by these fundamentals,” an unnamed trader said in an interview. Most players long dollars are being forced to sell to raise Kwacha funding to meet regulatory obligations.
The Kwacha has found ground at 12.825 over the last fortnight but with the demand fundamentals heightening with the tax window opening, the local currency traded stronger crossing a 100 day moving average leaving it more vulnerable to further bulls. The Central Bank has however intensified its presence in Open Market Operations (OMO) injecting liquidity to absorb the liquidity lacuna in its quest to manage interprets rates.
The Business Telegraph in its market update on MoneyFM this week still attaches a 60% likelihood of a stronger Kwacha to 12.455 levels in the medium term of markets remain net short Kwacha. Mutisunge Zulu a Non Executive Lead Analyst stated in a commentary of 10 July on MoneyFM.
The dollar environment is expected to weaken further on US Fed Chairs comments on openness to cut rates on 10 July as he gave testimony to Congress on the state of the economy and policy. The markets globally have attached a 98% probability of a 25bps rate cut which will weaken the dollar thereby providing support to emerging and frontier market currencies.
Written by Kondwani Phiri
