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The Zambian Kwacha is among the weaker African currencies this month, despite positive developments in the country’s bond market and higher copper prices.
The local currency has lost nearly one percent against the United States dollar in August, a move that contrasts with the rally in Zambian government securities following the August 13 presidential election.
According to market commentary by the Access bank group, Friday’s Treasury auction, the first since the election, attracted bids 37 percent above the K6.3 billion offered after the previous auction in June was undersubscribed.
Demand for longer-dated securities also strengthened, with the seven-year yield tightening by 101 basis points to 14.79 percent.
Read more: Kwacha slips as copper squeeze eases
The improvement in investor appetite has extended to Zambia’s international bonds, with Citi moving the country’s sovereign debt to an overweight recommendation. The 2033 Eurobond has also strengthened to about 98.57.
The divergent performance of the Kwacha and bonds suggests that investors may have already priced much of the currency’s earlier gains into the market.
The Kwacha remains Africa’s best-performing currency this year, having gained more than 16 percent against the dollar.
Zambian Kwacha bonds had also generated a 36 percent dollar return by late July, the highest among emerging markets tracked by Bloomberg, with currency appreciation contributing significantly to the performance.
However, the Kwacha has since retreated from a June low of around K18.00 to approximately K19.06 per dollar and is trading above its 50-day and 100-day moving averages.
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