Seven Quick Insights on the Kwacha
Shift in Resistance Area
· The resistance area on the top side has shifted from 27.000-27.400 to 26.000-26.500. Offshore players have increased selling activity every time the price reaches 26.000-26.500.
· This shift indicates more substantial selling pressure at a lower price range, suggesting more aggressive sellers.
Increased Two-Way Volatility
· Two-way volatility has increased, indicating a more efficient market with a higher level of market activity.
· This increase follows the Bank of Zambia's changes to the FX interbank structure and functionality, enhancing market responsiveness and liquidity.
More Dollar Supply in the Market
· The market has seen an influx of dollars, particularly over the last one to two months.
· Recent price action suggests the market is positioned long dollars, with a significant portion of these dollars likely coming from a critical mine clearing its longstanding local supplier arrears.
Technical Patterns and Moving Averages
· On June 27, 2024, the market breached a downward triangle pattern established since June 2023 and is now trading within another triangle pattern, indicating potential for another breach lower.
· At Friday’s close around 25.900, the pair is trading just below its 50-day moving average of 25.9368 and above its 100-day moving average of 25.8226. Notably, the 200-day moving average is close at 25.1246
· The pair is currently in dollar overbought territory, based on the stochastic oscillator (SS) and, close to overbought territory on the relative strength index (RSI).
Anticipated Bullish Second Half
· Looking ahead, the second half of the year could bring more bullish conditions for the kwacha, especially if the current robust supply of dollars continues and economic activity remains subdued.
· With lower economic activity, we anticipate [overall] reduced demand for dollars.
Significant Influence of the Global Economic Environment
· The global economic environment, particularly the Fed's potential rate cuts, could influence kwacha trading.
· Fed Funds Futures indicate the market is pricing in five rate cuts (125 basis points) by Janaury 2025 [four rate cuts by year-end 2024]. If the Fed begins an easing cycle, it will underpin a weaker dollar, benefiting undervalued emerging and frontier markets, including Zambia.
Kwacha Bonds Yield Curve Rally: Potential Beneficiary of Fed Rate Cuts
· The secondary market yield curve for kwacha bonds has rallied over the last two months: 2-year (-350 bps), 3-year (0 bps), 5-year (-75 bps), 7-year (-75 bps), 10-year (-75 bps), and 15-year (-200 bps).
· The secondary market yield curve is now relatively flat compared to the primary market curve from the last bond auction on July 19, 2024:
2-year: 19.00% (primary) vs. 20.50% (secondary market bid yield)
3-year: 20.50% (primary) vs. 21.00% (secondary market bid yield)
5-year: 22.50% (primary) vs. 23.00% (secondary market bid yield)
7-year: 24.00% (primary and secondary market bid yield)
10-year: 25.75% (primary) vs. 25.50% (secondary market bid yield)
15-year: 27.25% (primary) vs. 26.00% (secondary market bid yield)
Dean N Onyambu is the Founder and Chief Editor of Canary Compass, a co-author of Unlocking African Prosperity, and the Executive Head of Trading at Opportunik Global Fund (OGF), a CIMA-licensed fund for Africans and diasporans (Opportunik). Passion and mentorship have fueled his 15-year journey in financial markets. He is a proud former VP of ACI Zambia FMA (@ACIZambiaFMA) and founder of mentorship programs that have shaped and continue to shape 63 financial pros and counting! When he is not knee-deep in charts, he is all about rugby. His motto is exceeding limits, abounding in opportunities, and achieving greatness. #ExceedAboundAchieve
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