As global markets continue to sell-off, emerging markets continue to record exceptions against all odds. The copper currency, the Kwacha, has been on a 4-day winning streak with a 5.7% cumulative rebound intraday to 16.25 for a unit of dollar, levels last seen 7- months ago. The central bank has been in the market selling dollars which has seen the market run long positions that has strengthened the Kwacha. This however comes well ahead of the tax conversion season that recurs towards mid-monthly. Offshore players continue to demand dollars in uncertain times.
Zambia continues to witness risk appetite in the market as sectors such as the agribusiness and manufacturing rebound however copper until a few weeks ago is signaling recessionary fears as it sinks to 20 month lows below the $7,500 a metric ton level. Analysts are still of the view that this rally is temporal as the markets remain jittery around the bailout package uncertainty and an evolving external environment that makes hair cut discussions on debt complex by the day.
The Kwacha shaved 0.86% of its gains to close trading at 16.39 for a dollar. The copper currency is trading stronger than the South African Rand for the first time since May 2020. This makes imports cheaper for Zambia whose trade basket is 35% concentrated with South Africa but uncompetitive for agribusiness exports.
Traders remain more weary about the bearish interest rate environment into 2H22 as bond and treasury bill yields commence a climb as public finances remain under pressure and markets seek clarity around IMF bailout. The yield curve has seen upward shifts in the 6 and 9 month on the short end while bigger soars were observed in the 3, 10 and 15 year bond tenors.
The Kwacha Arbitrageur