While OPEC production cuts could slow the plunge of Nigerian naira, the real headwinds are ahead, thanks to the impending Fed rate hike, the incoming Trump administration, and US dollar as the new fear index.

In Africa, some 14 countries have been using the CFA franc that is pegged to the euro, while three have been pegged to the South African rand. Before the Trump triumph, the conventional wisdom was that as the US dollar would weaken against the euro in the short term, this will reduce inflationary pressures in these countries. However, skeptics argued that inflationary pressures were already low in most countries with a euro peg and a stronger currency would affect their competitiveness.

The post-US election conventional wisdom deems that a Trump presidency may strengthen the so-called ‘safe-haven currencies,’ including the euro and the yen, in the short term, whereas emerging market currencies will come under pressure. That, in turn, would mean raising inflationary pressures while boosting competitiveness in those countries that have more liberalized exchange-rate systems.

Yet, the realities are more complex and less promising.

African currency turmoil

In South Africa, political turbulence and international pressures have been reflected in the whip-sawing of its currency. In the past, rand exemplified the hopes associated with the BRICs economies. Today, it has been hit almost as hard as Mexican peso in the aftermath of the Trump triumph.

While fairly stable this year, Ghana’s cedi has been struggling the past few weeks, surging to 4.20 to US dollar compared to 4.04 only a while back. Kenyan shilling is expected to weaken, due to rising dollar demand from importers. In Uganda, the shilling has been hit by weak foreign demand.

Ever since 2009 and the global crisis, Zimbabwe has used the US dollar to replace its own failed dollar, along with rand, the euro and the Chinese renminbi. Only days ago, Zimbabwe rolled out a ‘bond notes’ currency, kind of surrogate dollars, to avoid a cash crunch, despite warnings that it could cause hyperinflation and undermine the rule of the 92-year old Robert Mugabe.