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The US dollar has pulled back in the past few months as investors embrace a relatively dovish Federal Reserve. The DXY has retreated to $101.7, down from the year-to-date high of almost $107. It has dropped against key currencies like the US dollar and Swiss franc.
USD/NGN vs USD/KES vs USD/AOA vs USD/RWF
Still, African currencies are not doing well, with most of them being in a strong freefall. The Nigerian naira (NGN) has been one of the worst-performing currencies this year and it seems like things are getting out of hand. The USD/NGN pair was trading at 835 on Friday, much higher than 450, where it started the year.
The spread between the official and the black market rate has continued widening, with the latter trading at 1,300. This means that Nigerian savers have seen the value of their money evaporate this year. Inflation, too, remains at an elevated level, with the most recent data showing that prices rose by 28% in November.
And it is getting worse as a cash crunch spreads in the country, with most banks limiting funds that Nigerians can withdraw. In a statement, the National Labor Congress said:
“POS operators currently charge around N400 to access N10,000. This is about a 4% reduction in the value of the income of poor Nigerians who hardly make use of electronic platforms to perform their transactions.”
The Nigerian naira is not the only African currency in a freefall. The Angolan kwanza has also collapsed, with the USD/AOA falling to 825, higher than the YTD low of 507. It has risen by more than 106% from its lowest point in 2022.
Angola’s economy is facing multiple headwinds as the price of crude oil pulls back. The country’s daily oil production has also dropped from almost 1.9 million barrels in 2010 to slightly above 1 million barrels today. This explains why Angola left OPEC this week.
The outlook for Angola’s economy is quite dire since the country’s economy depends mostly on the energy sector. And analysts believe that the lack of investment in production will worsen the situation.
Meanwhile, in East Africa, the Kenyan shilling has been in a freefall, with banks selling the dollar for over 155. It has risen from a low of 100 during the pandemic. The Kenyan shilling is also depreciating against the Uganda and Tanzanian shilling as the country’s economic outlook darkens.
The biggest challenge for the Kenyan economy is a big debt maturity, which comes in 2024. While the government has insisted that the country is out of danger, investors believe that the situation could worsen. Other African countries like the Ethiopian birr, Rwandan franc, and the Ghanaian cedi have also been in a downtrend.
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