A man displays a 50,000 Kwacha note in Lusaka in this file picture.

Lusaka - Zambia's kwacha fell nearly 2 percent against the dollar on Wednesday on increased demand from corporates taking advantage of the currency's strong gains at the start of the week to honour import payments.

By 15:51 SA time the kwacha was trading at 6.23 percent to the dollar after ending Tuesday's session at 6.11, pulling further away from Monday's near two-week high of 5.86.

“The recovery was never a sure bet, it's an uneven recovery. The kwacha, like (South Africa's) rand is exposed to two-way risk,” said Johannesburg-based Rand Merchant Bank currency analyst Nema Ramkhelawan-Bhana.

“So we're still dealing with the variability in the copper price, the level of export earnings feeding into the market to accommodate corporate demand; that imbalance in liquidity which is a key driver of the kwacha movements in the local market.”

A currency dealer with a commercial bank in Lusaka said corporate buyers who had held off buying dollars at last week's lows around 6.3-6.4, were now coming in to take advantage of the now relatively cheaper exchange rate.

Traders said Wednesday's volatility had little to do with news that the Zambian government would meet fixed-income investors in the US and the UK from March 27 ahead of its potential return to the Euro bond market.

Dollar supply should improve in the coming week as month end export payments came into the system, one trader said.

In a market note, First National Bank said global sentiment remained generally in favour of the kwacha, with the dollar trading weaker against a basket of currencies.

“Nevertheless, volatility is expected today as market players do not want to be caught on the wrong side of the market,” FNB added.

Zambia last week lifted a ban on the use of dollars for domestic transactions as authorities sought to ease pressure on the kwacha.

Finance Minister Alexander Chikwanda said the Bank of Zambia was revoking 2012 and 2013 regulations that required domestic transactions to be quoted and paid for in kwacha and gave the central bank authority to monitor foreign currency transactions. - Reuters