Exchange Rate Analysis by Kampamba Shula

US Dollar Exchange Rate

Ever since the Kwacha began rebasing on 1st January 2013, it has experienced volatile trades throughout the month of January.

The week from 7^th January to 11^th January showed some volatility (See Graph) with an upper limit of 5.35 and a lower limit of 5.19.

 

The second week from 14^th January to 18^th January had low volatility as the fundamentals began to settle in and sentiment was positive towards the Kwacha.

The Third Week from 21^st January to 24^th January had noticeable volatility especially on the 22^nd on which we first so a high of 5.39 which gave us an indication that the Dollar could cross over to the 5.4 levels.

 

Last week I predicted the dollar would maintain the 5.3 levels it had followed last week. But due to unexplained circumstances (honestly I do not know why the Kwacha has appreciated so sharply, I predicted a slow rise) the dollar reached 5.4 levels this week.

In the last week of January the dollar began rising slowly on Monday and Tuesday then on Wednesday the dollar made the most remarkable appreciation from 5.37 to 5.421 (See Graph).

Again I cannot stress enough how this appreciation has eluded even my predictions. The only explanation can be an emotional trade after the events on Tuesday when Zambia was eliminated from the African Cup of Nations Football tournament. How to correlate this to the dollar rate is hard, but it’s the only significant event that happened on Tuesday with the ability to create such a sharp rise on Wednesday.

Going forward my speculations remain the same as they were last year. The dollar could reach upper limit levels of 5.5 to the Dollar. My assumption here is that anything close to K6 will motivate the Bank of Zambia to intervene. But given the sharp rise in the dollar in just one week, I wouldn’t bet against the dollar going higher to 5.6 and 5.7 levels.

Disclaimer: All conclusions are based on fundamental speculation.