THE kwacha’s depreciation against major currencies has continued as demand for US dollars on the local market continues to outweigh supply, according to financial market players.
This has put the local unit under pressure and trading between K9.70 and K9.72 per dollar at the end of the first week of May, according to Bank of Zambia.
The local unit last hit this level against the dollar a month ago at a time it was rapidly appreciating when supply of dollars flooded the financial market amidst reduced demand.
But a month later, dollar liquidity has thinned as demand for foreign currency has picked up.
“USD/ZMW continues to trade just below K9.80 while the market remains seemingly calm. Nonetheless, the kwacha is expected to lose some ground today as demand for the greenback continues to outweigh supply,” FNB Zambia stated in a treasury newsletter on Friday.
“We are seeing a few dollar sellers in the local market, which is helping fill the current demand for currency in the market. This is due to clients converting dollars in order to take advantage of the current high interest rate environment.”
FNB stated that with dollar liquidity currently being scarce, the kwacha’s momentum will remain towards depreciation.
“It was a fairly quiet day on the USD/ZMW front, which saw the unit trading in a range of K9.65/K9.70 throughout the day. With dollar liquidity being scarce, momentum remains on the upwards (kwacha depreciation),” stated FNB.
And Cavmont also stated that the local unit’s performance remains under pressure with a “mismatch” in demand versus supply.
“Thursday’s trading session saw the foreign currency market continue experiencing a mismatch in demand and supply for the US dollar resulting in the kwacha’s continued southwards movement,” stated Cavmont in a market report.
“The currency pair opened at K9.70/K9.72 and slipped further owing to increased demand for the greenback. The kwacha closed at K9.77/K9.79, K0.075 weaker than the day’s opening levels. We expect the currency pair to consolidate at these levels in the short term”.