The Zambian kwacha extended losses on Tuesday, falling more than 2 percent to its weakest since May 2014, as concerns over President Edgar Lungu’s health affected market sentiment in Africa’s No. 2 copper producer.
President Lungu traveled to South Africa for further medical tests after a suspected narrowing of the food pipe caused him to fall ill over the weekend.
The kwacha touched 7.1450 against the dollar, and traders cited Lungu’s health as a catalyst in its decline.
“With two of the presidents dying in office in recent years things are a little jittery,” said Zambia analyst Irmgard Erasmus at NKC Independent Economists.
Concerns over Zambia’s mainstay copper business, which remains at risk after government hiked mining royalties in January, has also dampened the outlook for the kwacha. The higher royalties triggered a dispute with companies such as Glencore and Vedanta Resources.
Plans by the government to relax rules that had prevented $600 million in tax refunds being paid to foreign mining firms, helped the kwacha recover briefly late last month, but the currency has since weakened because the dispute is yet to be resolved permanently.
“Still on-going is the new mining tax regime, with the political risk perceived to have risen in recent days,” Erasmus said.
There was huge dollar appetite from the corporates such as the mines companies, said analyst Maambo Hamaundu, as the copper price fell on the day driven down by falling demand from top copper consumer China.
Copper fell on Tuesday as the dollar hit multi-year highs against the euro and yen and as data showed increased factory sector deflation in China. A strong U.S. currency makes dollar-priced metals costlier for non-U.S. investors.
Source : Reuters