African currencies face volatility amid dollar strength, AI concerns

African currencies came under pressure last week, dragged down by broader emerging- and frontier-market weakness as the United States (U.S) dollar strengthened, reflecting diminished expectations of Federal Reserve rate cuts.

The selloff gained momentum as South African Reserve Bank Governor, Lesetja Kganyago, highlighted concerns over inflated valuations in U.S. Artificial Intelligence (AI) stocks.

The Access Bank Group noted that “with technology giants poised to spend $371 billion this year on AI infrastructure and concerns mounting about overstretched valuations, higher-risk markets face potential spillover effects should corrections materialise.”

Despite the turbulence, analysts suggested that the weakness in African currencies may present buying opportunities rather than signal fundamental deterioration.

The bank stated, “any African currency weakness from US equity market turbulence likely represents a buying opportunity rather than fundamental deterioration.

Historical patterns suggest the Fed and US Treasury will intervene with stimulus measures if financial market instability persists beyond their tolerance levels.”

The commentary emphasized that African currencies remain attractive: “This backstop mechanism, combined with African currencies’ already attractive valuations and the high yields on offer, argues against prolonged depreciation.”

Underlying economic fundamentals across the continent continue to show improvement.

“Egyptian reserves stand at record highs, Nigerian reforms have strengthened external positions, and Ghana’s fiscal discipline continues supporting the cedi’s impressive gains.

Kenya’s reserves provide substantial buffers, whilst Zambia’s debt restructuring nears completion,” the Access Bank Group observed.

Short-term volatility is expected to persist as global risk appetite fluctuates.

However, the bank concluded, “African currencies with relatively strong fundamentals offer compelling value at current levels.

Any correction triggered by AI bubble fears should prove temporary, creating strategic entry points for investors willing to look beyond headline risk-off sentiment towards underlying economic improvements across the continent.”

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