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October currency review

Expatriate staff in Angola can expect to exchange foreign currency for considerably more of the local kwanza, following a major devaluation at the end of October. However, the downward impact on assignees' cost of living will soon be offset to a degree by a further rise in inflation, because prices of imported goods, which expats tend to buy a lot of, are sure to increase.

The devaluation (see first table below) is the latest in a series forced on Angolan authorities since the collapse of oil prices in 2014/15. Oil accounts for 90% of the country's exports, so budget problems quickly followed and shortages of foreign currencies, especially dollars, left the central bank with little option but to abandon the old currency fix with the dollar and reduce the kwanza's value. Despite promises, however, the bank has never felt able to let the kwanza float freely, for fear of igniting even higher inflation should the currency value collapse, and it continues to manipulate exchange rates. But by doing so, it has persistently overvalued the kwanza, prompting development of a black market which offers currency exchange at fairer value.

When Angola last devalued, in January 2018, we suggested there would need to be more to come, because the reform had only reduced the gap between official and black-market rates, not closed it. That view persists with this devaluation, because although the official rate has moved from AOA 385 to AOA 489 against the dollar, the black market rate has shifted to AOA 690. Angola continues to chase its tail, therefore.

Countries experiencing largest currency losses in October
Country
Currency code Movement v EUR
30 Sep - 4 Nov 2019 (%)
Inflation
(%)
Angola AOA -25 16.0
Argentina ARS -6 53.5
Chile CLP -5 2.1
Ukraine UAH -5 7.5
Venezuela VES -13 39113.8
Zimbabwe ZWL -8 288.6

Only three countries' currencies gained more than 2% against the euro in October, as the next table shows. The British pound, which has been very volatile in recent months, was one of them, as markets - and at least half of the divided United Kingdom - cheered yet another extension to the Brexit process, which meant the UK would not, at least for now, leave the EU without a deal to make its withdrawal orderly. A general election has been called for 12 December to try to break the Brexit deadlock. Unfortunately, it is far from guaranteed to do that, so there may be more currency volatility to come.

Countries experiencing largest currency gains in October
Country
Currency code Movement v EUR
30 Sep - 4 Nov 2019 (%)
Inflation
(%)
Gibraltar GIP +3 1.3
Poland PLN +3 2.6
United Kingdom GBP +3 1.7

If your company has staff in Lebanon, you may need to be aware of a growing risk of a currency devaluation there. The Lebanese pound has been fixed to the US dollar since 1997 for stability's sake. However, a recent surge in imports (possibly for onward sale to recovering Syria) and credit rating downgrades due to unsustainable debt levels have brought shortages of dollars and prompted a black market for foreign currencies to develop. Unofficial and official exchange rates have only diverged a little so far, but authorities would be wise to consider a devaluation to prevent a wider gap opening. Angola shows how difficult that might be to close.

Finally, here is this month's selected currency movements table:

Selected currency movements (v EUR)
Country Currency code % movement to 4 November 2019 v EUR since: Latest official annual inflation (%)
    30/9/19
(1 month)
5/8/19
(3 months)
29/4/19
(6 months)
5/11/18
(12 months)
 
Argentina ARS -6 -25 -24 -39 53.5
Australia AUD 0 +1 -2 -2 1.7
Brazil BRL +2 -4 -2 -6 2.9
Canada CAD -1 0 +2 +2 1.9
Chile CLP -5 -6 -11 -6 2.1
China CNY -1 -2 -5 0 3
Egypt EGP -1 +2 +6 +12 4.8
India INR -2 -2 -1 +5 4
Indonesia IDR -1 +1 +1 +8 3.4
Japan JPY -2 -2 +3 +6 0.2
Kenya KES -2 -1 -2 +1 3.8
Korea Republic KRW +1 +2 -1 -2 -0.4
Mexico MXN 0 0 -1 +6 3
Nigeria NGN -2 -1 -1 +2 11.8
Norway NOK -3 -3 -5 -7 1.5
Philippines PHP +1 +1 +3 +7 0.9
Poland PLN +3 +1 +1 +1 2.6
Russia RUB -1 +1 +1 +5 4
Singapore SGD 0 +1 0 +3 0.5
South Africa ZAR -2 -3 -5 -3 4.1
Sweden SEK 0 0 -1 -4 1.5
Switzerland CHF -1 -1 +3 +4 0.1
Turkey TRY -3 -3 +4 -2 9.3
United Kingdom GBP +3 +6 0 +2 1.7
United States of America USD -2 -1 0 +2 1.7
Venezuela VES -13 -48 -77 -99 39113.8
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