The currency in Africa’s copper producer Zambia recorded its largest one day slide to close 13 May trading at 13.3 for a unit of dollar. The Kwacha had closed previous session at 12.85. Intraday trading saw the local unit weaken to 13.5 after pairing losses to close yesterday at 13.3.
In an interview with an unnamed commercial forex trader, the BT established that despite the Kwacha being on the back-foot for most of the month on account of waning sentiment, speculative buying characterized the market as the unit approached 13 for a dollar forcing a surge of conversions into the safe haven currency.
“When the big figure changed to 13, there was panic buying in the market,” the trader said.
The Kwacha last traded these trough levels 42 months ago on 09 November 2015 which prompted the Bank of Zambia to hike rates 300 basis points in its Monetary Policy Committee – MPC meeting to 15.5% from 12.5% to curb currency slide.
“Much of what the Kwacha is exhibiting is a bearish money market contagion as evidenced by rising yields on government securities with the latest move being a 175 and 220 bps uptick in 9-month and 1-year treasury yields. Markets are now eagerly looking for clues as to what the Bank of Zambia will effect come the 22 May in its rate decision meeting, Oscar Miyanda Currency Strategist at the Business Telegraph said in a note.
The note further carried that emerging and frontier markets will be under pressure from a dollar that is forecast to rein between 3-6 months as a safer haven currency given the macro backdrop fueled by the trade war effects between US and China. the dollar index (DXY) measured against a basket of 6 major currencies is at 97.5.
As at 12.17pm the Kwacha was trading for 13.4 on the sell side.
