Forex Outlook for AZA Finance: Turkish Lira (Cedi) Reaches New Low amid 19-year High Inflation

Forex Outlook for AZA Finance: Turkish Lira (Cedi) Reaches New Low amid 19-year High Inflation

1. Cedi Plunges to New Depth Against Dollar Amid Inflation Surge

The Ghanaian Cedi has slid to a fresh low against the US dollar this week, trading at 8.10 compared to 8.02 at the end of the previous week. Ghana's annual inflation increased to its highest in almost 19 years in June, soaring by 29.8% compared to a 27.6% rise in May. The currency has been under duress for ten consecutive months, surpassing the central bank's target range of 6% to 10%. Additionally, economic growth slowed to 3.3% in the first quarter, with the Cedi depreciating by nearly a quarter against the greenback since the year's outset.

2. Rand Sinks to 22-Month Low as Output Dwindles

South Africa's Rand dropped to its weakest level against the dollar since September 2020, reaching 17.15 before pulling back to trade at 16.97, compared to 16.86 at the end of the last week. The latest bout of weakness followed a contraction of 0.2% in May's manufacturing production, in contrast to expectations of a 1.5% expansion. The Rand also felt the pressure from global factors, including a broader retreat from riskier assets as investors sought the safety of the dollar, with US interest rates forecasted to continue rising. We anticipate more stress for the Rand in the coming week.

3. Egypt's Pound Stays Steady Amid Inflation Ease

The Egyptian Pound traded little changed against the dollar this week, holding at 18.87, equal to last week's close. A slowing of annual inflation to 13.2% in June from 13.5% in May represents a reduction in six continuous months of accelerating price growth. Although inflationary pressures persist given Egypt's dependency on wheat imports, recently impacted by Russia's war in Ukraine, the Pound's resilience supports a relatively stable performance against the dollar over the coming week.

4. Shilling Faces Election Pressure at Record Low

Kenya's Shilling sagged to a fresh record low against the dollar, trading at 118.10/118.30 compared to 117.95/118.15 at the end of the last week amid increased demand for the greenback from the manufacturing and energy sectors. The central bank has attempted to stave off a steeper decline by dipping into its FX reserves, which currently stand at $7.9bn, equivalent to 4.61 months of import cover. Political uncertainty related to the upcoming presidential election, scheduled for less than a month, may exert further pressure on the Shilling in the near term.

5. Shilling Retraces Uganda Rate Hike Gains

The Ugandan Shilling weakened against the dollar this week, trading at 3771, compared to 3744 at the end of the last week, erasing gains seen immediately following last week's emergency rate hike. June's annual inflation increased to 6.8% from 6.3% the previous month, remaining above the bank's 5% target. This week, police made more than a dozen arrests amid protests over the rising cost of living, with protestors demanding government aid for basic food items. With an estimated economic growth of 4.5% to 5% for 2022 anticipating expansion to 5% to 5.5% in 2023, supported by public investment, the Shilling is poised for renewed strengthening in the medium term.

6. Tanzanian Shilling Holds Steady After IFC Loan Agreement

The Tanzanian Shilling remained unchanged against the dollar this week, trading at 2373. Tanzania's annual inflation advanced to 4.4% in June from 4% in May, marking its highest level in nearly five years. The World Bank's International Finance Corporation this week agreed to lend the country $100m through CRDB Bank Tanzania to boost funding for small and medium-sized companies. Around a quarter of this loan will support women-owned businesses, the IFC announced. However, the annual inflation rate's acceleration to 4.4% implies possible Shilling weakening in the near term.

7. Africa Struggles with Fuel Price Surge

Surging fuel prices have triggered protests across Africa, with leaders seeking solutions to address the situation. In Mozambique, the World Bank is subsidizing bus fares, as reported by Bloomberg. Ghana is reportedly seeking aid from the IMF to shore up its economy after mass protests stemming from rising living costs. Kenya and Nigeria, both gearing up for elections, are grappling with soaring fuel subsidies that are widening budget deficits. Despite various interventions, drivers are still affected by further fuel price increases. In Kenya, the Energy and Petroleum Regulatory Authority is expected to raise pump prices by at least 10 Shillings per liter, even while the government cushions consumers by about 40 Shillings, according to Kenyan Wallstreet. The ongoing pressure on currencies in Africa, as documented below, may contribute to the unfolding challenges.

8. Naira Set to Lose Further Ground

The Nigerian Naira sank to a new record low against the dollar on the unofficial market, trading at 619, compared to 615 at the end of the last week. The Nigerian Union of Petroleum Exploration and Natural Gas workers has threatened solidarity action with the Academic Staff Union of Universities following an eight-month shutdown of university activities across the country. This could heighten difficulties faced by Nigerians amid ongoing fuel scarcity. Meanwhile, the Manufacturers Association of Nigeria has petitioned the government to grant licenses for diesel imports from neighboring Chad and Niger to address electricity reliability and diesel fuel costs. We anticipate more depreciation for the Naira against the dollar in the near term due to the strained political climate.

Note to Journalists: Feel free to quote from this briefing for news reports. For further comment or interviews, please reach out via the contact details provided or by replying to this email. AZA is Africa's largest non-bank currency broker by trading volume at over $1 billion annually. More information can be found at https://www.azafinance.com. Issued by AZA. This Newsletter is created to serve our clients, prepared by our dealing professionals, and based on their understanding and interpretation of market events. AZA cannot be held accountable for any losses of any nature incurred as a result of actions taken based on the comments contained in this publication.

Contact: Gavin Serkin, [email protected], +44 20 3478 9710.

1. Despite the Ghanaian Cedi's weak performance, investment in Ghana's business sector may still yield growth opportunities as the economy expands, offering potential returns for investors.
2. The weakening South African Rand could pave the way for cheaper exports, fostering trade growth with global partners and boosting the country's economy.
3. Egypt's relatively stable currency performance, amid easing inflation, could attract foreign investors seeking stability in emerging markets, aiding in the growth of local businesses and the economy.
4. Political instability in Kenya, as indicated by the Shilling's record low, could stifle market confidence and domestic investment, potentially slowing economic growth.
5. Although the Ugandan Shilling's weakening against the dollar may amplify inflationary pressures, public investment is anticipated to drive economic growth in the medium term, creating opportunities for businesses and the market.
6. The ongoing pressure on currencies in Africa, as documented in this report, could impact various sectors, including finance, energy, and transport, leading to increased costs and decreased competitiveness on the continent.
7. The fuel price surge across Africa could cause market volatility in various sectors, particularly in finance, trade, energy, and transport, disrupting the flow of goods and services, and potentially adversely affecting economies.
8. The depreciation of the Nigerian Naira could increase the cost of imported goods, particularly in the energy sector, straining businesses and households, and exerting negative pressure on Nigeria's economy.

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