Market Watch|Just before COVID-19 hit our shores, rates were trending towards the 50 mark; certainly above 45! Immediately after the announcement of the 21-day lock-down, the ZWL seemed to have been strengthening and the rate went down to as low as 35 in some instances. In the last week, in the typical topsy-turvy fashion we have become accustomed to, the local currency has started weakening again.

The question is surely why is this happening when companies are supposed to be on a lock-down and therefore demand for hard currency should be diminished?

‘Dummy’ Trades?
While most traders were quoting rates between 35 and 40 immediately after lockdown, it does not seem as if there was much trading going on at those levels, from a volume and value basis. In addition, our analysis revealed that while bids were quite strong at those levels from the main players, selling was very constrained due to a non-market reflective rate. If anything, the players were only buying, but not selling. Those bids were largely speculative while everyone was trying to assess the situation.

Offline trading platform?
Most of the transactions in this business are largely relationship and face-to-face driven. During the early days of lockdown, everyone was unsure of the extent of the lockdown in terms of allowing movements and interactions. A very hard lockdown would have reduced interactions and therefore impacted the trading of FX. However as the situation has progressed and due to the relaxed nature of the lockdown, the players have found ways to interact and continue transacting. We have seen in some groups, traders beginning to be more innovative and now offering de-centralised transacting points in various neighbourhoods.

Everyone is a critical sector!
While initially a few companies were considered critical and therefore to remain open during the lockdown, we have seen in recent days literally everyone being allowed to open as they are a ‘critical’ service. We are not qualified to comment on the impact that has on flattening the curve; so will pass. What this has done is to increase demand for hard currency as players need to retool and produce.

Did I hear you say SI 85?
We are now all allowed to transact in any currency after another policy shift by RBZ. The simple question is are you better off holding ZWL and hoping to transact in local currency or seeking USD that will most likely conserve value and give you transacting flexibility? That’s a no brainer! In fact, this policy alone will push demand for FX and might lead to the death of ZWL!