Hedge funds active in the international currency market are reducing their exposure to the US dollar. This is a sign that the value of the main currency of world trade could continue to decline. There are risks and opportunities for Africa.

Hedge funds are cautious about the US dollar, we learn from data provided by the Commodity Futures Trading Commission (CFTC), the regulator of futures contracts on commodity exchanges and the foreign exchange market. Even though the US currency remains the main target for this category of investors, the volumes allocated to it suffered last week, the largest drop since May 2018, according to calculations by Bloomberg.

For analysts, this development of things is proof that the fall in value that the dollar has been experiencing since the beginning of the summer is likely to continue. Hedge funds that are on the currency exchange market very often have seasoned forecasting teams. The growing negative sentiment on the dollar coincides with a growing positive sentiment on the euro.

This could have a big impact on Africa. Companies that are proactive in managing risks and opportunities are watching developments carefully, especially those with dollar debt repayment obligations. A weaker US currency is a significant exchange gain.

For foreign capital that has invested in Africa, a fall in the value of the dollar can have several effects. We noticed last week all the difficulty that foreign investors have encountered in quickly withdrawing their capital from Nigeria due to a depreciation of the local currency against the dollar. A weaker dollar over the long term would give them a breath of fresh air.

African governments will also be attentive to the evolution of the American currency. Apart from the countries of the CFA franc zone which have a significant composition of their international debts in euros, most of the obligations of the States of the region are in dollars. The decrease therefore benefits the repayment of the debt. On the other hand, if the US currency continues to decline, this could weigh on export revenues and therefore the ability of countries to meet their budget revenue forecasts.

At the beginning of March 2020, when covid-19 declared itself with force, many investors immediately sought to protect themselves by acquiring as much as possible the American currency which is also that of international transactions.

In reaction to a risk of overvaluation of its currency which would be detrimental to it, the Federal Reserve (American Central Bank) reacted strongly by offering more dollars to partner countries and by buying back public and private debt. It finally seems that she injected more money than necessary.