Interbank forex market weekly review

THERE is clear sustained exchange rate pressure in the economy. In other words, despite much hope, the exchange rate is yet to fully stabilise, if ever it will. e deduction is drawn from a number of observations made from movements in the exchange rate between markets, the volumes of trades in the formal market, the level of economic activity, money supply in the economy and capital market developments. An aggregation of the behaviours of these different variables and markets shows an exchange rate that remains generally weak and prone to shocks. We will look at each of the factors in this piece and help support our deductions. In the current week, the Zimdollar eased by 0,1% in formal trades.

The decline, while marginal, is the widest in four weeks and takes the streak of sustained weekly losses to five weeks.

The lower bid has been more sticky when compared to the top bid. is means buyers willing to pay less have been more resolved and confident of supply than those willing to pay more. In a normal market, especially when the exchange rate is moving in an adverse direction, we would expect the lower bid to move up more frequently than the top bid would move. Overall the Zimdollar has pared 3,39% over the last 4 months and 1 week, that is on a year to date scale. is is worse off compared to the decline suffered in the last quarter of 2020. e local unit depreciated by -0,43% in that respective quarter. e biggest takeaway in this week’s trading session is the level of interbank allocation. e total amount allocated surged to US$41,63 million, which is the highest allocation size since the interbank market was operationalised.

While this injection is in line with the RBZ target, it may be lagging the growth in economic activity. Supply chains disruptions, low disposable incomes and a recurring lack of capital investments are factors that are likely to drag production in the current year, hence influencing the Zimdollar exchange rate. Movements in local capital markets, which have since begun rerating upwards in May, shows a market that is continually anticipating currency instability and a market with limited instruments over which to spread investments. e stock market, as shown in 2020, has discounted potential movements in the exchange rate and thus rerating upwards ahead or in line with the currency depreciation. Since the beginning of May the ZSE is nearing 10% in gains and this movement is in line with the worsening parallel exchange rate.

Gwenzi is a financial analyst and MD of Equity Axis, a financial media firm offering business intelligence, economic and equity research. — respect@equityaxis.net

Out of 18 trading weeks stretching from the beginning of the year, the local unit has lost value in 15 weeks and gained only in 2. is statistic is a primary indicator for lack of stability as losses have largely been sustained. However, the relative rate of decline when looked at against last year, shows significant improvement, which most have relied on to deduce that the exchange rate has stabilised. We are of the view that the relative comparison indeed shows improvement, but the absolute sustained decline also reflect fragility in the stability enjoyed, a point which would help policy makers and business operators in negotiating their path on the outlook. Chart number 1, which is on top left shows the trading performance of the Zimdollar on the interbank. e top bid, which went up last week, came off by 2 points in the current week. ere has been less of a defined relationship between the top bid and the exchange rate. For example, with the current week’s depreciation in the average exchange rate, the top bid would be expected to rise, vis a vis, but such has not been the case for a long period. is would imply that we can read less from the movement in the top bid relative to average rate. e lower bid has interestingly been stable for 14 weeks and has been tracked by the lower accepted bid.

Interbank bids