Ghana’s cedi remained vulnerable to strong corporate demand for dollars in August even as several African currencies posted gains against the US currency, according to Afreximbank Research, which cautioned that much of the continent’s recent foreign-exchange strength reflected a weaker dollar rather than improving domestic fundamentals.
The cedi traded at 10.9 per dollar as of Aug. 17, compared with 11.6 a month earlier, representing a 5.5% month-on-month appreciation, according to data in Afreximbank’s August report. The currency was, however, 1.7% weaker than a year earlier.
Afreximbank said the broader improvement in African currencies should be interpreted cautiously after the dollar index weakened from an intraday high of about 101.8 in July to approximately 99.4 at the end of August.
“Where African currencies appreciated against the US dollar during August, part of the movement reflects broad-based dollar weakness rather than a fundamental strengthening of the underlying African currencies,” the report said.
That distinction is particularly important for Ghana, where the report said the cedi remained exposed to strong corporate demand for dollars despite the broader improvement in some African foreign-exchange markets.
The report said a currency’s appreciation against a weakening dollar does not necessarily signal stronger domestic economic conditions. More durable gains, it said, are typically supported by improvements in foreign-exchange reserves, export earnings, capital inflows, remittances, current-account balances and investor confidence.
African currencies face additional risks from renewed geopolitical tensions and higher oil prices, which could reverse recent improvements in emerging-market foreign-exchange conditions.
The impact is likely to vary sharply across the continent. Oil-exporting countries could benefit from stronger foreign-exchange earnings, while oil-importing economies face larger import bills, wider current-account pressures and increased demand for dollars, Afreximbank said.
The bank said the sustainability of currency gains will increasingly depend on country-specific fundamentals rather than movements in the US dollar.
For Ghana and other African economies, that means temporary appreciation driven by dollar weakness should not automatically be used as the basis for future exchange-rate assumptions, foreign-currency debt projections or funding costs, the report said.
