Kwacha depreciation triggered by US Fed interest rate hike – Hamaundu

The kwacha’s depreciation in recent days has been triggered by the strengthening of the US dollar against other emerging market currencies, says financial market analyst Mambo Hamaundu.

The kwacha has continued depreciating against major currency convertibles to hit above the K10.00 per dollar mark in the final week of August.

According to Bank of Zambia data released, Wednesday, the kwacha depreciated by 1.4 per cent against the US dollar to an average K9.89 in the second quarter ending June 30.

However, the local currency maintained a depreciating trend to break the K10.00 per dollar psychological barrier in August to hit current trading levels of between K10.15 and K10.30 for bid and offer respectively by mid-August.

Hamaundu attributed the recent depreciation of the kwacha to the appreciation of the US dollar against other major currencies following an upward adjustment of interest rates by the US Federal Reserve, America’s central bank, which has hiked interest rates twice so far this year, the most recent being in June.

He noted that Zambia’s money market remains turbulent and easily affected by external forces.

“You see, our market is turbulent; it’s a very difficult market to read But clearly, one thing we cannot run away from is perhaps the demand for forex has been quite high. And secondly, the dollar generally, has strengthened against almost all international currencies. It has strengthened against the (SA) rand; the pound; the euro. So, I think what has happened in America is also affecting us here in Zambia. I think in America they have raised interest rates to strengthen their currency. And we are seeing the reflection of that on the kwacha losing strength. So, the main driver really for this depreciation of our currency could be attributed to the appreciation of the American dollar,” Hamaundu told News Diggers! in an interview in Lusaka.

“The bonds could have an effect in two ways. Where there is an option for bonds, if you we have a lot of foreigners coming to buy and invest in dollars, or to buy these Treasury Bills, you know it will support the supply of foreign exchange, and that could lead to an appreciation of the kwacha. You know, where the bonds have matured, and the investors decide not to re-invest and others take out their money, there could be pressure in terms of demand because if they are foreigners, they would want to convert their kwacha’s into dollars; and that could put pressure on the currency and that is how the kwacha could probably be affected.”

BoZ data further noted that the kwacha’s depreciation during the second quarter occurred despite the increase in net supply of foreign exchange, mainly from the mining industry.

         

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