THE kwacha has continued depreciating to hit K15.32 per dollar owing to a sustained demand for the greenback on the local market, compounded with little supply.
According to financial market players, the kwacha maintained a weak position, breaching the K15.00 per dollar mark by the end of last month.
It continuedits depreciating trend to now average K15.32 per dollar, representing around two per cent loss in value in just three trading days and over four per cent in one week from its previous trading position of K14.70 per dollar on February 24.
This is the second time in three months the local currency had quickly lost value to hit above the K15.30 per dollar level after reaching a similar range last December.
In its latest Treasury market update, FNB Zambia noted that the kwacha’s losses had been triggered by continued dollar demand amidst scarce foreign currency supply.
The local currency’s performance has defied earlier expectations of a kwacha rally amidst the usual month-end conversions by corporates to meet local statutory obligations.
“The USD/ZMW continued its easing trend in yesterday’s (Monday) trading session to close at K15.32, having opened at K15.25. Activity was very subdued albeit skewed towards USD demand as per rate movement. Traditionally, the month-end USD/ZMW trend tends to favour the local unit as corporates convert their USD to meet their local unit obligations. However, the current trend would suggest that flows haven’t been enough to support the local unit,” FNB stated in its daily market update released, Tuesday.
“As we come to the end of the month-end cycle, we could see the local unit lose even more ground as the support provided by month-end flows starts to dry up. In the absence of significant market moving news, we expect the currency to continue losing ground against the USD. We see resistance at K15.40”.
And Cavmont stated in its market report that the kwacha’s weakness had come despite subdued demand for foreign currency by corporates.
“The kwacha closed the (last) week (of February) lower against the US dollar on Friday at K15.20/K15.25 from an opening level of K14.70/K14.75, Monday. Despite subdued demand from most corporate buyers, the local unit has continued to come under pressure owing to thin supply from sellers,” stated Cavmont.
The local currency’s continued depreciation comes in the wake of expensive electricity and fertilizer imports into the country last November, expected to be ongoing in the short-term future.
Meanwhile, last Friday’s government bond auction was poorly subscribed in that out of the K1.1 billion on offer, only K257 million was allocated at cost.