The Zimbabwe dollar has strengthened against the US dollar in the past few weeks as investors target the upcoming general election. The USD to ZWL dropped to 5,425, the lowest level since June 13th of this year. It peaked at over 7,143 in June.
Zimbabwe election ahead
The Zimbabwean dollar has been one of the worst-performing currencies this year. It has plunged by almost 100% as concerns about the economy worsened. For one, the prices of some of the leading exports have dropped this year.
At the same time, many people in Zimbabwe have moved to the safety of the US dollar after seeing the purchasing power of the ZWL drop drastically. As a result, the local currency has been under intense selling pressure as the dollar shortage escalates.
The next important catalyst for the Zimbabwe dollar will be the upcoming election, which is scheduled for August 23rd. Emmerson Mnangagwa, the incumbent, is competing with ten other candidates.
He is vying on the ruling ZANU PF party. Long-term opposition leader, Nelson Chamisa is his biggest opponent. He won 44% in the last election in 2018 and he now hopes that the deteriorating economy will push more young people to vote for him.
There are no viable polling data for now though most analysts expect that it will be a close fight. Many young people could opt for Chamisa since the economy is doing badly. The Zimbabwe dollar is slowly becoming worthless while power outages have become common.
Outlook for the Zimbabwe dollar
USD to ZIM dollar
The Zimbabwe dollar has been under pressure in the past few years as demand for the currency weakened. The currency has weakened even as the stock market in Harare sees one of the best performances this year. Its primary index has jumped by over 800% this year, outperforming the MSCI world index.
The robust performance of the market has not attracted foreign investors who are afraid of the currency depreciation, currency controls, and low liquidity.
I believe that the current Zimbabwe dollar strength will not last, especially with an election coming up. While the currency could rally if the opposition wins, these gains will be short-lived since turning around the economy is not easy.
Zimbabwe still has triple-digit inflation and the overall unemployment rate has surged to over 20%. The real figure, including underemployment, is alarmingly higher than the official figures.
Therefore, I suspect that the Zimbabwean dollar will resume the bearish trend ahead of the upcoming election as capital flight intensifies. If this happens, the USD to ZWL will likely retest the year-to-date high of 7,143.
Source: Invezz
