Dollar Squeeze Spells More Pain for World's Worst Currency

(Bloomberg) -- The world’s worst-performing currency in 2018 is on the slide again.

Angola devalued the kwanza in January and then kept it fairly stable in the following two months. But the central bank in Africa’s second-biggest oil producer is loosening its grip again, dropping the currency 3.7 percent against the dollar last week and 2.2 percent this week. That’s brought this year’s loss to 27 percent.

The devaluation has gone some way to easing concerns of investors, who have also been impressed by reforms under new President Joao Lourenco: on Wednesday, they placed $9 billion of orders for $3 billion of Eurobonds sold by the government. The country is also benefiting from Brent crude’s 11 percent rise since the end of 2017 to almost $74 a barrel.

But that’s not been enough to end a shortage of dollars, which is crippling importers, and it hasn’t offset a fall in oil production. Angola pumped 1.5 million barrels a day in April, the least since the beginning of 2014, according to data compiled by Bloomberg.

The foreign-exchange squeeze remains “substantial” and is reflected by the kwanza’s black-market rate, Standard Chartered Plc analysts including Samir Gadio and Eva Murigu said in a note this week. The kwanza trades at 420 against the greenback on the streets of the capital, Luanda, almost 45 percent weaker than its official rate of 230.

Increasing bearishness toward emerging markets doesn’t help, either. Developing-nation currencies have slumped for five weeks running as the dollar strengthens and U.S. bond yields rise. Turkey’s lira and Argentina’s peso have been hammered this week, though they’re still outperforming the kwanza so far this year.

To contact the reporter on this story: Paul Wallace in Lagos at pwallace25@bloomberg.net.

To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Robert Brand, John Viljoen

©2018 Bloomberg L.P.