THE kwacha has started depreciating towards the K10 per dollar mark following strong demand for dollars and an unexpectedly undersubscribed Treasury Bill auction.
According to financial market players, the kwacha, which appreciated against the US dollar by over 2 per cent during the first quarter of the year, is starting to depreciate again owing to stronger demand for dollars amidst weaker supply.
FNB stated in a daily treasury newsletter issued last Thursday that the local currency is depreciating against the dollar following strong demand, particularly from offshore players.
“USD/ZMW opened Wednesday (April 11) at K9.45/K9.50 and did not move from the opening level. Even though the rate did not change, we saw demand from offshore players,” FNB stated.
“We are of the view that the kwacha will continue with its weakening trend due to gloomy sentiments surrounding Zambia.”
According to FNB, the latest Treasury bill auction, which was expected to be undersubscribed, will be a contributing factor towards weakening the local currency.
“The Treasury bill auction is on today (August 12). Normally, we see an increase in the supply of dollars before the auction, but this has not been the case this time around. Demand for the rand by importers has also contributed to the weakening kwacha,” FNB stated.
The kwacha had been expected to maintain its appreciation against major convertible currencies following the settlement of provisional tax returns last Tuesday, but the local currency, however, has moved in the opposite direction.
“Friday was a rather quiet day even though we saw USD/ZMW spike up from K9.47/9.42 to K9.53/9.58. We are of the view that USD/ZMW will be skewed towards the downside as demand for the greenback increases. Trades above K9.65 are not far off,” FNB stated in a follow-up daily treasury newsletter released Monday.
And Cavmont Bank noted in its market report issued Monday that the kwacha is expected to come under renewed pressure owing to diminishing supply of dollars.
“The kwacha closed the week trading above $1/K9.50 mark, with market activity remaining largely quiet throughout the session. The kwacha remains bullish, though it has been steadily coming under pressure following a wane in supply from sellers,” stated Cavmont.