The local currency sank to its lowest ever point against the US dollar this week, breaching the P14/USD point, as the greenback globally rose to highs ahead of the return of President-elect Donald Trump to the White House.
According to Bank of Botswana data, the pula reached P14.14 against the dollar on Monday, the lowest level the local currency has dropped to against the greenback, before recovering slightly to end the day at P14.05 by press time on Wednesday.
The central bank uses midmarket rates, meaning local currency dealers such as banks were quoting higher rates for those seeking the dollar this week.
The US currency has generally been rising for several months, helped by superior growth forecasts than other developed markets and frequently stronger-than-projected employment figures, including the latest data set released last week Friday.
Trump pre-presidency remarks about ramping up his America First policies, including unleashing tariffs on several nations in order to make imports more expensive and boost US production, has also resonated with markets in the world’s biggest economy.
Analysts have said the confidence Trump has brought to domestic markets has helped the US dollar, at a time when it was already soaring due to a positive economic trajectory, while other regions such as the European Union and parts of Asia experience weakness.
Locally, there is an expectation that a stronger dollar will help the recovery of the country’s diamonds by making these cheaper for Americans, whose purchases account for 54% of annual sales.
“The sentiment is that the economy (in the US) will perform well and he is coming in on the perception that he will improve the economy,” Bank of Botswana governor, Cornelius Dekop, told BusinessWeek recently when asked about Trump’s possible impact on the local economy. “If that happens, it will be good for us in terms of demand for commodities like diamonds, which will improve or ramp up our revenues.”
The stronger US dollar will also help boost tourist arrivals from the US, a key market for the high value resorts and camps in the Okavango Delta.
However, the stronger dollar is also expected to put pressure on fuel prices, as oil is globally priced in the greenback. A rising dollar generally piles onto the costs incurred by oil companies in bringing fuel into the country.
Although Botswana Oil has since taken over 90% of oil imports into the country, its suppliers are still bringing in a product priced in US dollars, as South Africa’s own production has collapsed in recent years.
The local currency, meanwhile, has been steady against South African rand, staying either flat, or marginally strengthening, in response to the weakness against the dollar. According to Bank of Botswana data, the pula started the year at R1.34 and by press time on Wednesday was at the same level. However, within that period, the rate increased to R1.35/BWP on Monday, as a response to the peaking of the dollar against the pula.
The central bank’s crawling peg system and currency basket weights mean that the Pula’s value moves conversely against increases or decreases in the US dollar and the South African rand.