Africa forex update: Zimbabwe ZiG, Ethiopia birr, Nigerian naira, rand (ZAR)
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African currencies have sold off sharply this year, with most of them sitting at their all-time lows against the US dollar. These currencies have slumped because of the dollar shortage in most countries, the persistent inflation, and high interest rates in the United States.
Ethiopian birr is in the spotlight
Ethiopia has been one of the fastest-growing economies in the past decade. In this period, the economy was used to experience double digit growth, helped by increased foreign direct investments (FDI), mostly from China.
Ethiopia also benefited from its robust investments in infrastructure, including the construction of the biggest dam in Africa.
All this good work was undone in a recent civil war that left thousands of people dead. A recent drought has made things worse while inflation has jumped.
The Ethiopian birr has been in a freefall as the USD/ETB exchange rate soared from 7.05 in 1998 to 57 today. It has also dropped in each month since April 2019, making it one of the worst-performing currencies in Africa.
USD/ETB chart
Now, Ethiopia has announced a radical shift it hopes will lead to a robust currency and economy. It will end its managed float and shift to the free float as it seeks to unlock $10 billion in additional IMF financing.
The new change means that banks will be able to buy and sell foreign currencies at freely negotiated rates. It will also remove import restrictions on 38 product categories and simplify rules governing foreign currency accounts. Economists believe that these measures are good for the economy though the Ethiopian birr could take a hit in the near term.
Zimbabwe ZiG still going strong
Meanwhile, the new Zimbabwe ZiG is still going strong a few months after launch. The currency was trading at 13.80 on Monday, a few points above where it started trading at in April.
The Zimbabwe ZiG is a unique currency that is backed by the US dollar and gold. It is the sixth attempt by the country to have a stable currency in the last two decades.
The currency has done well for three main reason. First, unlike the Zimbabwe dollar, it is a rare currency that most people in Zimbabwe have never seen. Second, the government has promised not to go to the old habits of printing cash to fund the budget.
Third, the Zimbabwe ZiG currency has been stable because of the recent stamp of approval by the International Monetary Fund (IMF). Still, as I have warned before, the currency faces an uphill task in the future.
Nigerian naira crash accelerates
USD/NGN price chart | Source: TradingView
The Nigerian naira has continued its downward trend this month. The USD/NGN pair has risen in the past four straight months and is slowly nearing its all-time high of 1,630.
This crash continued even as the Central Bank of Nigeria (CBN) has taken several actions to save the currency. It has become the second-worst performing currency globally after the Lebanese pound.
The most recent CBN action was several interest rate hikes and the decision by the central bank to sell foreign currencies to traders between 1,470 and 1,510. At the same time, the amount of dollars in circulation have increased to over $37 billion even as the scarcity continued.
The Nigerian currency will likely remain under pressure in the next few months. However, there are chances that dip buyers will swoop in and pump it later this year as we saw in Kenya, where the shilling has soared this year
South Afriican rand stuck in a range
The South African rand has done well this year, becoming one of the top-performers in Africa. The USD/ZAR exchange rate was trading at 18.25 on Monday, a few points above the year-to-date low of 17.86.
This price has fallen by over 5.7% from its highest point in 2024. This price action happened after the South African election and the subsequent formation of the government.
At the same time, the South African central bank has maintained interest rates steady in the past few months. In July, the bank left rates at 8.25% for the seventh consecutive meeting and hinted that it may cut rates later this year. In a note, an analyst at Capital Economics said:
“Alongside two MPC members voting for a cut at today’s meeting, we now expect the SARB to embark on an easing cycle at its next meeting in September with a 25 basis points cut to 8%.”
Some of the other African currencies to watch have been the Kenyan shilling, Zambian kwacha, and the Angolan kwanza. The Kenyan shilling has risen by more than 20% this year, making it the best-performing currency globally.
At the same time, the Zambian kwacha (ZMW) has slumped to 26 after the government moved to de-dollarize the economy. The Angolan kwacha sits at a record low of 875.
The post Africa forex update: Zimbabwe ZiG, Ethiopia birr, Nigerian naira, rand (ZAR) appeared first on Invezz
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