Currencies To Experience Further Strain

October 2008 | Market Strategy

The extreme volatility and uncertainty in international financial markets, combined with slowing global economic growth, continue to weigh heavily on sub-Saharan African (SSA) currencies. First, in a climate of heightened risk aversion, investors are trying to reduce their exposure to SSA markets with high political risk and significant macro-economic imbalances, in particular large current account deficits. Second, the worsening global growth outlook has led to a considerable correction in commodity prices, such as metals and soft commodities, which poses a risk to export revenues for many SSA countries. Against this backdrop, a majority of SSA currencies have experienced significant losses over the past week and in many instances have broken through key technical support levels, which could indicate further declines over the short term.

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