- Zimbabwe dollar extends losses for two straight weeks against the US dollar
- Number of bids for US dollars increases to 16, with US$17 million allotted
- High demand for US dollars signifies changes in aggregate supply of Zimbabwe dollar liquidity
Harare- On the RBZ-governed Auction Market, the Zimbabwean dollar experienced a negative performance, marked by a 0.4% depreciation on August 8th, taking it to two straight sessions of depreciation. The currency recorded a decline from ZWL4542.3710 in the prior week to ZWL4559.7414.
Despite holding a positive trajectory with five consecutive sessions of appreciation two weeks ago, the currency has sustained a 1.2% decrease against the US dollar month-to-date.
The Zimbabwean dollar remains confined within a range of 6500 to 7500 in the parallel market rate, indicating a persistent variance in premium between the two markets. This raises concerns regarding the efficacy of the auction market rate, as it remains unclear whether it is still being influenced by economic forces or otherwise.
Meanwhile, the number of bids rose from 15 to 16, leading to the allotment of US$17 million, a significant increase compared to the previous week's US$497 thousand. This spike in both bids and allotments indicates not only the heightened demand for the US dollar ahead of the elections but also the underlying changes in the aggregate supply of Zimbabwean dollar liquidity.
The pronounced demand for the US dollar suggests that the Zimbabwean dollar is currently experiencing high liquidity. Companies, in anticipation of the upcoming elections, may be divesting their Zimbabwean dollar holdings and instead hedging their assets with the US dollar, which is considered a key preservation strategy.
Despite this trend, the tight control of Zimbabwean currency injection into the economy serves as a critical safeguard against any inclination towards free-falls or record free-falls.
The future of the Zimbabwean dollar will be significantly impacted by the outcome of the upcoming elections, as the government is expected to settle its outstanding payments to contractors and suppliers. This is being delayed to avoid any potential upsurge in election-related spending. The currency's stability can be preserved if the government incorporates a larger share of the payments in US dollars.
Zimbabwe has a well-documented history of facing economic challenges in the aftermath of elections, which is characterized by inflationary pressures and exchange rate volatility. These challenges arise from policy slippages and political violence that typically follow such events. This pattern has been observed in the aftermath of the 2002 presidential election, the 2008 elections, and again after the 2018 elections. This highlights the significant economic impact that political events can have on the country's currency and its broader economy.
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