Kwacha could firm to 4,650 vs dlr by Q1 2011

The Zambian Kwacha is expected to rally more than nine percent against the dollar by the first quarter of next year, supported by higher maize and copper export earnings, a Reuters poll showed on Monday.

The kwacha has lost some ground against the greenback over the past few weeks, mostly due to global risk aversion, and was last bid at 5,080 on Monday, off its strongest level this year of 4,370 which it touched in January.

The currency should however gradually claw its way back against the dollar, ending this year at 4,750, according to the median forecast of 10 analysts polled by Reuters.

A further rally in the first three months of 2011 could see it end that quarter at 4,650, as dollars flow in from maize exports after the southern African country reaped a good harvest of the staple grain.

“It is expected that the kwacha will perform well in the coming months, considering the bumper harvest the country has recorded in the 2009/10 season,” said Mudenda Syamujaye of Zambia’s Cavmont Bank Limited.

A government crop survey showed the country produced 2.7 million tonnes of white maize in 2009/2010, beating last season’s harvest of 1.9 million tonnes and leaving a surplus of 1.1 million tonnes.

“Maize exports are expected to increase (and) increased copper production from the new mines, with sustained mineral prices, is also likely to support the kwacha in the long term,” added Syamujaye.
Africa’s biggest copper producer has weathered the global economic slump relatively well, buoyed by rising copper demand and a recovery in prices of the metal.

Zambia’s central bank has said copper exports jumped to 675,384 last year from 587,125 tonnes the previous year.

Output of the mineral rose 14 percent to 697,860 tonnes last year and Zambia has previously said production could hit 1.0 million tonnes by 2011 as new mines come on stream and expansions and upgrades take place at existing mines.

In the Reuters poll, forecasts for the kwacha in the first quarter of next year ranged between 4,600/dollar and 5,500/dollar.

Some analysts believed the currency could weaken in coming months, weighed down by continued lack of appetite for risky assets in the face of debt woes in some European countries, which have seen the euro lose ground against the dollar.

“The Zambian kwacha is suffering amid fears over a declining euro, which have precipitated a rush towards U.S. dollars”, said Lisa Lewin of the London-based Business Monitor International.

“If the kwacha falls through key technical support at 5,300 per dollar, further depreciation to 5,700 cannot be ruled out.”

A Reuters weekly Africa currency look ahead last week showed the Zambian kwacha was seen strengthening this week due on corporate demand for the local unit to pay taxes.

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