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Zambia’s Kwacha extended its losses against the U.S. dollar on Wednesday as increased demand for foreign currency outweighed relatively modest supply on the market.
According to Absa Bank Zambia’s daily market commentary, the USD/ZMW pair opened at K19.5500/19.9018 before the Kwacha shed 2.5 ngwee to close at K19.5500/19.6000 on the bid and offer, respectively.
“The local currency was expected to trade within a range, particularly as the month-end approaches, with movements largely dependent on prevailing foreign currency demand and supply dynamics,” the bank said.
Kwacha’s performance comes as copper, Zambia’s major export, gained on improving physical demand from China, the world’s largest consumer of the metal, despite pressure from higher U.S. interest rates.
Read more: Kwacha extends losses against dollar
Three-month copper on the London Metal Exchange rose 0.2% to $14,260.50 per metric ton by 0310 GMT, while the most-traded copper contract on the Shanghai Futures Exchange gained 0.9% to 108,380 yuan ($16,154.90) per ton.
Market traders attributed the improvement in Chinese physical copper demand to a recent pullback in prices, which provided buyers with an opportunity to replenish stocks.
Copper prices, however, remain below recent peaks.
LME copper has fallen more than 4% from last week’s record high of $14,875 per ton, while Shanghai copper is about 3.5% below its previous peak of 112,330 yuan.
Copper prices are closely watched in Zambia because the metal is the country’s main export and a key source of foreign exchange earnings.
The availability of foreign currency from export proceeds can influence dollar supply on Zambia’s domestic market, while demand for imports and other foreign currency transactions can put pressure on the kwacha.
The currency, therefore, likely to remain sensitive to domestic foreign exchange flows and developments in the international copper market.
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