Q4'22 FX Outlook - SSA Currencies: On the twin edge of the cliff
So far in 2022, African currencies have been on a cliff, no thanks to the war in Ukraine. In recent times, the tension has escalated with the West imposing price caps on Russia’s energy prices. This, combined with the reduction of OPEC+ quota and depletion of the US Strategic Petroleum Reserve, could result in elevated oil prices in Q4’22. With these events spurring oil prices higher, net-oil importers (Kenya, South Africa, Ghana) could reel under high gasoline prices. Economies that export consumer-discretionary items such as flowers (as in the case of Kenya), may suffer from lower external demand, as trading partners undergo demand destruction. Countries that export inelastic commodities such as oil (as Angola and Nigeria) could benefit from the foreseeable uptick in energy prices. While crude theft continues to trample on the export potential of Nigeria, the recent discovery of an illegal 4-kilometre pipeline and loading port lends some hope to crude production recovery.
Near-term outlook remains bleak
The escalation of the Russia-Ukraine war implies broad-based depreciation in the final quarter of the year, as elevated oil prices keep SSA currencies (excluding the Angolan Kwanza) under pressure. In addition, a hawkish US Fed could keep SSA Eurobond yields on the rise, making it more difficult for sovereigns to raise funds from the international debt market.
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