Kwacha Dollar depreciation/appreciation REVIEW

Daily Mail Article By NANCY MWAPE and KALONDE NYATI
THE Kwacha is expected to appreciate following the resolving of the debt crisis in Europe, Bank of Zambia (BoZ), financial markets reports and statistics manager Douglas Kalamatila says.
And the local unit yesterday posted a marginal gain and was poised to close the day at about K5,050 against the United States dollar (US$) after opening around K5,100, according to the Standard Chartered Bank newsletter.
Mr Kalamatila, who however, could not ascertain the expected levels of the Kwacha against the US dollar said the Central Bank is worried about the levels of the Kwacha volatility adding that from January to March 2012, close to US$132 million was provided to support liquidity in the market.
In an interview, Mr Kalamatila said since the beginning of the year, the Kwacha has depreciated against the US dollar from K5,100 to K5,300 as a result of problems in the Eurozone.
“This has affected the local currency. It is not just the local currency which has been affected in terms of depreciation. Most commodity currencies have depreciated against the US dollar,” he said.
Mr Kalamatila said the debt crisis in the Eurozone has resulted in investors being risk averse, moving out of emerging countries’ assets to safe havens such as treasury securities of the US and developed countries’ economies which has affected the local currency.
He cited demand and supply as some of the factors that affect the exchange rates.
“If you look at the period in which the local currency has been depreciating, apparently commercial banks have been net purchases of foreign exchange, meaning that, there has been more supply than demand of the foreign exchange. Ordinary if it was just these two factors taken into account one would have seen the local currency appreciating,” he said.
Zam-Africa Assessment by Kampamba Shula

I cannot help but agree totally with Mr Kalamatila's assessment.It provides the most thorough explanatiuon as to why the kwacha had been depreciating even thumping my own assumptions.He says debt crisis in the Eurozone has resulted in investors being risk averse, moving out of emerging countries’ assets to safe havens such as treasury securities of the US and developed countries’ economies which has affected the local currency.
This has affected the local currency. It is not just the local currency which has been affected in terms of depreciation. Most commodity currencies have depreciated against the US dollar.

Dollar commodity graph research

We shall use the Aussie dollar as a commodities proxy.Look at the graph below.

The Aussie economy is tied heavily to China through commodity trade. As the Chinese economy slows, or at least isn't accelerating as fast, the Aussie will weaken. In the above chart, the price action is carrying momentum down through the trend line, signifying USD appreciation.

AUDUSD 1-minute Chart: May 2, 2012

Following the data release, the greenback strengthened against the higher-yielding currencies such as the Australian, Canadian and New Zealand dollars. The US dollar advanced as much as 16 pips against the Aussie in the first few minutes as the slump in factory orders pared risk appetite and sent investors back towards the safe haven currency.

The reason for the Kwacha's depreciation is a mixture of macro economic factors partly stemming from the Euro debt crisis and partly from the greenbacks gains against commodity currencies.
The reason I say this is because U.S Treasuries are the safest haven for global money  even better than gold.They are easy to sell once a person needs liquidity and offer the safest return in the world.