Currency speculators taking hold of FX market

For the past three months, currency trading speculators have been increasingly taking trading positions against the cedi in an effort to reap quick profits from the national currency’s signs of weakening against the dollar, a forex broker with Sarpong Capital Limited, Jeffery Paa-Kwesi Tawiah, has revealed.

The Ghana cedi has shown a weakening position against the dollar for the past three months as it depreciated by 0.47 percent, although on a year-to-date basis it is showing a slight level of appreciation, according to the interbank forex rate on Thursday, June 24, 2021. On the open currency market, the cedi is trading at around GH¢5.90 as against about GH¢5.70 on the interbank FX market.

Commenting on the current market position in an interview with the B&FT, Mr. Tawiah said that, currently, the market is seeing both speculative and real demands for the dollar on the FX market. “Now that the market thinks there is a shortage of the dollar, we are going to have a situation where people will now speculate the price upward – causing market participants to begin buying and hoarding although they may not have a need for it. This is where it might be problematic,” he said.

He added: “Some of the rise can be attributed to the speculative position of the market; and this has led to an increase in the depreciation of the Ghanaian cedi against the dollar since April”.

To some extent, other market analysts have indicated that import bills have already begun to increase with economic activities picking up, and this is an indication for the central bank to strengthen its buffers to shore-up the currency. As at April 2021, the gross international reserves were US$10.9billion, providing import cover for 5.1 months.

More often, if there is a significant inflow being expected from any bond issuance by government or cocoa inflows, it tends to stifle any possible speculation – since there is some certainty in the short-term for forex inflows to shore-up the cedi.

There are also indications from the market that the BoG will wait for the current situation to peak before intervening in order to have a significant impact when they shore-up the currency. “We are waiting for the BoG to finally begin an aggressive market intervention on a daily basis, because they are more than capable. We were all expecting BoG to begin their intervention to drop the rate,” the FX analyst said.

“If BoG can start aggressive interventions to at least kill the speculations and assure the market that there is enough dollar to meet the market needs, we would see an easing in the depreciation,” he suggested.

Despite the central bank conducting a bi-weekly forward FX auction, Mr. Tawiah noted that it has not been much effective – although, year to date, the central bank has committed about US$463million to the FX market through the forward auctions.

“I don’t really see the impact of the bi-weekly auction, given that on a daily basis an average bank is able to buy about US$2million to US$3million. So, on the average, we are looking at 23 banks demanding about US$46million to US$69million, which is more than what the BoG is auctioning bi-weekly,” he stated.

“Although the central bank has enough FX reserves, it is currently allowing the market to see how far it can go with the rates before coming in with massive support to the rates. The BoG did a similar thing in 2019, when it allowed the rate to fall all the way to almost GH¢6 to US$1 before coming in to shore-up the cedi,” he added.


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