A First National Bank – FNB note to its clients seen by the Zambian Business Times – ZBT has attributed the Kwacha appreciation to a sudden US dollar supply or inflows into Zambia of dollars coming from off-shore (outside Zambia) market players.
“The local unit appreciated by about 2% against the greenback (US dollar) in Wednesday 8 December 2021 trading session, to close the session at K17.17 from K17.52 at the mid. Volumes ticked up on both sides of the market, particularly in US dollar supply as corporates closed off dollar positions. With market fundamentals unchanged, the local unit’s movement was purely sentiment driven,” FNB explained in its Daily Market Update on Thursday 9 December 2021 seen by the Zambian Business Times – ZBT.
“With sentiment biased towards further kwacha gains and foreign currency demand remaining anaemic, we expect the local unit to trend lower and breach the K17.00 mark in today’s (Thursday) session. Support is seen at K16.80.”
The FNB note further explained that offshore investors were largely responsible for offloading dollars on the local financial market.
“As expected, the local unit responded positively to the news that Zambia had finally reached a Staff-Level Agreement with the IMF – moving from an opening mid-level of K17.84 to K17.52 at close of business. We saw an immediate impact on the offshore side as players offloaded significant US dollar flows into the market. Offshore flows were supplemented by onshore supply from some corporates looking to meet local currency obligations,” FNB stated in an update released Wednesday.
“It is unclear whether the IMF agreement’s effect on sentiment has bottomed out given [the current] market movement. Overall, activity slowed down on both ends of the market (demand and supply) as some businesses continue to wind down for the year. With outstanding demand orders filled and overall demand waning, we could see the local unit continue to make gains, albeit mild, against the greenback. Support and resistance are seen at K17.30 and K17.70, respectively.”
On Friday, December 3, the Zambian government reached a Staff-Level Agreement on a programme under the IMF’s ECF that envisages provision of financial support of US $1.4 billion over a period of three years.
And Access Zambia Bank Limited which is now a big player on the Zambian banking sector following its acquisition of Cavmont and the recently announced merger with Atlas Mara has observed that positive sentiment from the Fund’s ECF announcement fuelled the local currency’s appreciation against major currency convertibles.
“Monday trading saw the kwacha make bullish moves against major traded currencies on the back of positive sentiment surrounding the IMF Staff Mission Agreement with the Zambian government. The USD-ZMW pair opened the trading session quoted at K17.78/K17.83 and closed at K17.54/K17.59, 1.57 per cent stronger than Friday’s close of K17.82/K17.87,” stated Access Bank in its Treasury Market Update released recently.
The names these offshore players who have flooded the Zambian market with dollars following the signing of the staff level agreement with IMF has not been made public. More to follow on who these players are and what they intend to invest into…
