The copper currency, the kwacha sprinted 3.47% to a high of 15.275 for a unit of dollar on day one post announcement of bailout by the International Monetary Fund. Opening September 01 at 15.725 after closing previous day at 15.825/USD the currency in Africa’s red metal producer rallied 3.47% (intraday) after which it reversed 1% of the gains to settle at 15.425/USD.
The market continues to experience players taking short positions in anticipation of flows following the Washington based lenders extension of a 38 month credit facility of $1.3billion. The hype in the Zambian market comes in the wake of an IMF board’s approval of bailout assistance which is expected to attract foreign direct investment. A few players on the day dumped dollars to take profit while offshore players have continued taking margin as they seek flight to safety cushioning themselves from tightening global monetary conditions.
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Global dollar strength remains elevated with the DXY index at highs of 107 that continues to overvalue the kwacha on a trade weighted basis at 20.3. DXY index measures dollar strength against a basket of 6 major currencies. A stronger dollar signals global uncertainty given the chaotic state of the risk landscape characterized by a persistent pandemic in China breeding lockdowns and Russia Ukraine war autopsy that has dislocated energy, base metal and food markets.
Upside risks to the currency could likely come from agriculture demand as the fertilizer purchase season commences. Zambia’s farmer input support program aimed at strategically managing food security risks commences in the fourth quarter but breeds dollar demand to fund fertilizer imports. Other pressure factors could include festivity spend for retailers ahead of the fourth quarter season and general activity to support growth pulse as the economic gears for growth.
Despite a day one strong winning streak, markets will seek for clues as to when the kwacha draws a line in the sand.
The Kwacha Arbitrageur