Zambia’s world-beating kwacha rally to be tested in coming weeks

Zambia’s kwacha faces risks in the coming weeks that may snap a year-end rally that has extended into 2026 and made it the world’s best-performing currency.

The kwacha has gained more than 10% against the dollar since the start of last month, the biggest advance among currencies tracked by Bloomberg. It rose nearly 4% on Monday, its largest one-day gain since October 2023, and traded as strong as 20.10 per dollar on Wednesday, its firmest level in more than two years.

“A looming inflection point is anticipated in mid-January, as the broader economy returns to full capacity,” said Chipo Shimoomba, a treasury dealer at First Alliance Bank of Zambia Ltd. “This period will likely see a resurgence in corporate demand, posing a structural challenge to kwacha’s recent performance.”

The kwacha’s gains so far have hinged on factors including sellers offloading dollars after the central bank ordered a curb in the use of foreign currencies in domestic transactions, corporates aggressively converting foreign exchange into kwacha to settle statutory tax obligations, and a scorching rally in copper prices. Zambia is Africa’s second largest producer of the metal after the Democratic Republic of Congo.

Support for the local currency is also likely coming from tax payments ahead of a Jan. 10 deadline and a central bank directive curbing the use of foreign currencies in domestic transactions, according to Samir Gadio, head of Africa strategy at Standard Chartered Plc.

Still, support for the kwacha which comes from elevated copper prices that has boosted production and foreign-exchange supply, hinges on demand for the metal remaining strong, Gadio added.

BLOOMBERG