The USD to XAF exchange rate has shown notable stability, currently positioned at 60-day lows around 560.6, which is only 0.5% below its three-month average of 563.5. The market has traded in a tight range of 3.4%, fluctuating between 552.7 and 571.4, indicating limited volatility in recent weeks. Analysts attribute the USD's weakness to a combination of factors, including expectations of aggressive Federal Reserve rate cuts projected for 2026, which have led to a subdued demand for the 'greenback'.
Market sentiment has shifted weight towards riskier assets, forcing the USD lower. With recent mixed economic indicators from the U.S., such as weakening manufacturing data and declining consumer spending, analysts suggest that unless the labor market shows significant deterioration, the downward pressure on the USD may persist, albeit moderated by labor strength. In a broader context, the anticipated dovish stance from the Federal Reserve constrains the USD's yield advantage, prompting a shift in investor preferences toward equities and commodities.
While the USD faces these challenges, the XAF is experiencing some stability due to recent developments within the Central African Economic and Monetary Community (CEMAC). The approved budget increase for 2026 signals cautious optimism about regional economic conditions. However, conflicting views regarding the CFA franc, especially with rising calls for monetary sovereignty and structural changes within the region, inject uncertainties that could influence the XAF's valuation in the medium to long term.
Overall, currency market forecasters suggest that the USD/XAF pair is likely to remain range-bound, reflecting both the ongoing restructuring dynamics within the Central African region and the prevailing risk-on mood that continues to pressure the USD lower. Traders and businesses engaging in international transactions may want to monitor the upcoming inflation data from the U.S. and signals from the Fed, as these could provide further insights on the potential direction of the USD in relation to the XAF.
