EU sanctions on Russian banks are exacerbating Africa’s growing food crisis by making it difficult to pay for wheat exports, according to African Union chair and Senegal President Macky Sall. He told EU leaders that the worst is still ahead if global food supply issues persist.
The food crisis has also prompted EU leaders to consider sending Africa an aid package worth $535m to help tackle food shortages that officials worry could spur a fresh wave of migration into Europe.
With supply chain issues pushing inflation higher across the continent, we expect continued pressure on African FX markets in the near term.
Under-pressure Naira edges back from fresh dollar low
The Naira pulled back from a record low against the dollar, trading at 608 having clipped 611 earlier in the week from 610 at Friday’s close.
Flight delays and cancellations continue to hamper Nigerian travellers despite an alliance signed by six major airlines in the country to navigate the aviation fuel crisis. The consortium said the cost of aviation fuel has eroded any gains made from the alliance.
Meantime, Nigeria’s main opposition party PDP has selected former Vice President Atiku Abubakar as its primary candidate for next year’s presidential election. We expect the Naira to appreciate in the run up to the election as political dollars in circulation are converted back to the local currency.
Cedi to stabilise as rate hikes take effect
The Cedi weakened marginally against the dollar this week, trading at 7.80 having opened the week at 7.77.
While the currency’s rapid depreciation has slowed over the past couple of weeks, the currency has still lost more than a quarter of its value since the start of the year.
Total public debt currently stands at about 78% of GDP, with Ghana shut out of global capital markets after credit ratings agencies Fitch Ratings and Moody’s Investors Service both cut the country’s sovereign debt rating earlier this year.
We expect the Cedi to hold steady in the coming days on the back of Ghana’s recent interest rate hikes.
Rand strengthens as unemployment edges lower
The Rand appreciated marginally against the dollar this week, trading at 15.51 from 15.62 at last Friday’s close, supported by local and global factors.
On the domestic front, unemployment fell to 34.5%—down from a record 35.30% in the fourth quarter of 2021. From an international standpoint, the risk-on rally boosted the Rand, with the US Dollar index easing off its recent highs.
A number of analysts believe this optimism could be short-lived, suggesting the Rand could be heading back to the 16 level.
However, we expect the Rand to remain around the 15.5 level, at least in the near term, with any shift in the dollar’s outlook likely to be the main driver for any further strengthening or weakening.
FX outflows take toll on Egyptian Pound
The Pound weakened marginally against the dollar this week, trading at 18.6 from 18.58 at last week’s close, extending a dismal run for the currency as FX outflows continue to weigh heavily.
Egypt this week signed an agreement with the UAE and Jordan to double its exports to $100bn over the next three years, part of a broader plan to bolster trade with Middle Eastern countries to limit the impact of Russia’s war in Ukraine.
We expect the Pound to remain under pressure over the coming week, though we don’t anticipate any major slippage from around the current 18.6 level.