The kwacha has continued depreciating against major currency convertibles to breach the K12 per dollar psychological barrier for the first time since October, 2015.
And dollars are currently scarce on the local financial market, further weakening the kwacha’s prospects of any strong recovery in the short-term.
According to financial market players, the kwacha has breached the K12 psychological barrier per dollar to trade above K12.00 on account of continued heightened demand for dollars on the local market with correspondingly limited supply of the greenback.
The local unit was seen trading at K11.81 and K12.04 by lunchtime, Tuesday, for bid and offer respectively, according to the Bank of Zambia, down from an average of K10.99 and K11.06 per dollar just last Wednesday.
This depreciation represents an around eight per cent devaluation of the kwacha in a space of just six days, and coincides with stagnated copper prices of around US $6,000 per tonne.
The last time the kwacha depreciated to hit the K12 per dollar barrier was October, 2015, where it traded above K12.00 per dollar in the final quarter of that year.
A check around several bureaus in Lusaka found the kwacha had quickly depreciated to over the K12 per dollar mark.
The kwacha traded at K11.87 and K12.10 per dollar for bid and offer respectively at Golden Coin Bureau, while Ace-FX Bureau quoted the local currency at K11.90 and K12.10 per dollar by lunchtime yesterday.
Ace-FX Bureau director of finance Brian Sakala noted that there is currently a scarcity of dollars on the local market.
“Actually, there is no dollar on the market now, even walk-in clients, nothing! Yesterday, we were just seated, nothing was happening. I think players on the market were a bit hesitant to move in. Now, it’s a free-fall; the kwacha is just tumbling. There is no money in circulation,” Sakala said in an interview in Lusaka.
And FNB Zambia stated that improved copper prices on the international market will be key in helping to improve the kwacha’s performance.
“The local unit opened the week still at a loss, as dollar demand continues to put pressure on the local unit. Strong sentiment, backed by flow, will be vital in helping the market stay below the huge psychological barrier,” FNB stated in a daily treasury newsletter released, Tuesday.
“Although sentiment is still bearish, we may be seeing the end of a long losing streak. An improvement in supply will hold the market in good stead, with a good possibility of turning the currency’s fortunes. Improved copper prices may trigger positive sentiment.”
Cavmont stated in its market report that dollar inflows were lower than expected.
“The kwacha inched closer to the $1/K12 mark on Monday as support for the local unit continued to be lower than expected, while demand for the U.S dollar remains relatively high, especially on the interbank,” stated Cavmont.
“Despite the movement, most corporates have remained cautious as they anticipate a gain in the local unit with support expected from month-end inflows from sellers and exporters.”