Currency risk on mood to persist. As currency market risk on mood persist in emerging and frontier space, the Kwacha is expected to extend its losing streak trading north of 15.5 for a dollar unit. Driving this will be pockets of disinvestment risk taking a cue from global risk sentiment and the skew towards safer bets as coronavirus infects financial markets. Market nervousness will be a key theme week until emergency response plans are vivid in emerging and frontier markets as Covid-19 pandemic fears grip Africa after cases were reported in Nigeria and Kenya.
Kwacha remains vulnerable. The Kwacha is very vulnerable to shocks as the copper producer grapples with lean reserves incapacitating selling of dollars on the open market to stabilize prices. Other drivers of pressure include dollar funding appetite for agriculture inputs. Should the losing streak get out of hand the central bank could tighten cash reserves to manage liquidity. Dollar liquidity remains thin.
Private sector pulse still in the doldrums. Markit Economics / Stanbic Purchasing Manager’s Index (PMI) will release February private sector data pulse readings for February for African nations, Zambia inclusive. The red metal hotspot last headlined 47.5 with energy risks, lack of liquidity and currency weakness being the three themes weighing the private sector. These factors are forecast to further weigh February readings expected between 47.5-48. Currency weakness is a key driver of input inflation that has manifested in higher selling prices.
Zambia’s purchasing managers index readings have been in contraction (<50) for the last 15 months.
The Kwacha Arbitrageur
