Exchange rate regimes across the continent affect African currency valuations for sure. Africa has many small economies with their own currencies, which makes their exchange rates very volatile. Consequently, the dollar is the official tender in many countries. Not many economies on the continent enjoy the privilege of a freely floating exchange rate, for example, South Africa, Morocco and Tunisia.
For many other countries, supranational organisations are the way out of the "Balkanisation". For example, the AfCFTA, which announced the launch of a payment platform last month, will reduce dependence on the dollar or euro on the continent by allowing payments between these countries to be made in local currencies without conversion to third currencies.
The currencies of developing countries tend to fall over the long term, as they rely on unstable economies and often have higher inflation. Many of the continent's currencies have come under pressure due to the pandemic. But even those that have managed to bounce back from significant losses recently are now falling back again.
The analyst team of the FxPro investment company stressed that the currencies of South Africa, Tunisia and Morocco, which are not strictly pegged to the dollar, seem to have lost their recovery momentum, starting a new wave of weakness against the dollar. A reassessment of the monetary policy outlook, the prospect of higher interest rates in the USA and a significant recovery weakening promises to turn into a new outbreak of turbulence in weaker regions.
Also working against Africa is the slowdown in China and the ongoing trade disputes with the US. This reduces demand for the continent's labour and resources. In this environment, it would not be surprising if, in the next 6-12 months, the ZAR, MAD or TND renew the lows against the dollar set before the pandemic began. It is also worth paying attention to the solvency of local countries. China's experience this year and the Eurozone debt crisis of 10 years ago indicate that debt problems often come to a couple of years after the most acute phase.
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