The market bias for the USD to XAF exchange rate is currently bearish. Key drivers include the interest rate differential, with the US Federal Reserve expected to implement several rate cuts that may weaken the USD. Additionally, the Central African CFA Franc (XAF) has recently appreciated against the dollar, bolstered by economic developments in the region, such as increased Chinese investment in Cameroon. Lastly, ongoing discussions about potential reforms to the CFA franc system may further impact the XAF’s stability.
In the near term, the USD/XAF exchange rate is likely to trade within a range that reflects its recent behavior, which has seen the USD hold steady in a narrow band with minimal volatility.
One upside risk to consider is a positive shift in US consumer sentiment, which could support the dollar's strength. Conversely, a downside risk includes the potential implementation of the proposed 'Eco' currency by ECOWAS, which could dilute the XAF’s role and create uncertainty in the exchange rate.