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Home Business News

China Meltdown: This Is What Could Happen To African Currencies Next Week

Nairametrics by Nairametrics
January 7, 2016
in Business News
China Meltdown: This Is What Could Happen To African Currencies Next Week

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The market rout in China is now posing a larger than expected threat to the world economy. The country faces an economic crisis as it moves from an economy focused on production to one that is focused on consumption. The Chinese economy is also expected to grow at a slower rate this year and investors fear the bubble in its real estate market that had been expected for years may now materialize. To make matters worse the Chinese stock market is now on a free fall with its China’s CSI 300 Index plunging 7.2 percent on Thursday, which according to Bloomberg, triggered an automatic shutdown within 30 minutes of the open. The Chinese currency Yuan is also tumbling giving investors  more reasons to be concerned.

How does this affect Nigeria and Africa? According to Reuters the impact on major African currencies will likely be negative. Reuters projects what could happen to each of these currencies next week;

NIGERIA

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The naira is seen weakening a little next week as more businesses resume from holidays and dollar demand rises.

The local currency was quoted at 270 to the dollar on the parallel market on Thursday, weaker than 266 to the dollar last week. The naira traded at 199 to the dollar on the official interbank market as at 1126 GMT.

 

GHANA

The cedi is expected to weaken as businesses begin to buy dollars for their first quarter import, traders said.

The local currency, which weakened 16 percent in 2015, compared to more than 30 percent in the previous year, has been fairly stable in the 3.8200-3.8300 band in the past week.

“Amidst expectations of high demand for dollars during and immediately after the festive season, the cedi could come under some pressure in the coming week,”

 

KENYA

The shilling is expected to ease due to increased dollar demand by companies, traders said.

Commercial banks quoted the shilling at 102.05/15 to the dollar, compared with last Thursday’s close of 102.20/30.

“We will see demand kick in. This week has been quiet,” a trader at one commercial bank said. “As it is, we haven’t got a number of calls from some of the corporates that usually buy the dollar, so we expect proper corporate activity to pick up.”

ZAMBIA

The kwacha will likely weaken due to a China market rout, which has fuelled demand worries for industrial metals like copper, Zambia’s top export commodity.

At 1132 GMT, commercial banks quoted the currency of Africa second-largest copper producer at 10.9900 per dollar from 10.8200 a week ago.

“We expect the kwacha to be pressured next week due to spillover effects from China, and renewed weakness in industrial metals,”

 

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