Kenya and Uganda's shillings are both expected to gain next week due to increased monetary tightening by their central banks and, in Uganda's case, strong foreign interest in its high-yielding short-term debt.
UGANDA Uganda's shilling is expected to extend its rally due to a strong inflow of dollars before a Treasury bill auction on Wednesday, as well as low consumer spending induced by tight monetary policy. The Bank of Uganda (BoU) is expected to auction 95 billion shillings ($35.6 million) worth of 91-, 182-, and 364-day Treasury bills on Wednesday.
Commercial banks in Kampala quoted the shilling at 2,640/2,650 against the dollar, much stronger than last Thursday's close of 2,837/2,847. "The shilling's momentum is very strong because we expect a surge in inflows as offshore investors convert dollars to participate in the auction," said Denis Mashanyu, a trader at Standard Chartered Bank Uganda.
KENYA Kenya's shilling is seen strengthening against the dollar next week due to the central bank mopping up liquidity and intervening in the foreign exchange market by selling dollars to commercial banks. The Central Bank of Kenya has been mopping up shillings through repurchase agreements and pumping in dollars ahead of a rate-setting meeting on November 1, to fight high inflation and extreme volatility in the exchange rate.
Banks posted the shilling at 100.20/30 against the dollar, slightly weaker than last Wednesday's close of 100.00/10. Kenyan markets were closed for a holiday last Thursday. The shilling has strengthened from a record low of 107 on October 11 after the central bank lowered the allowed foreign exchange exposure for banks and followed through on a hawkish stance adopted in mid-September with regular mopping-up of liquidity.
TANZANIA The Tanzanian shilling fell to a new low against the dollar on Thursday and is likely to stay under pressure next week due to uncertainty over central bank measures to support the local currency. Commercial banks quoted it at 1,820/1,830 to the dollar compared with 1,715/1,725 at last Thursday's close. "The shilling might continue to depreciate in the coming days due to demand for dollars from importers. We are seeing 1,850 as a new resistance level," said Hakim Sheikh, a trader at Commercial Bank of Africa, Tanzania.
NIGERIA The naira is seen strengthening against the dollar in anticipation of month-end foreign exchange inflows from energy companies and possible regular direct forex sales to banks by the central bank. The naira was trading at 160.10 to the dollar on the interbank on Thursday, weaker than Wednesday's 159.90 close as tight dollar liquidity persisted.
"We expect cautious trading on the interbank market until there are dollar sales by some oil companies and possible intervention by the central bank to provide the needed liquidity and support for the naira," one dealer said.
GHANA The cedi is likely to gain against the dollar due to sustained central bank intervention and improving global market conditions, traders said. After heavy losses earlier this month, the cedi has stabilised around 1.594-1.599, with Barclays Bank Ghana chief trader Kobla Nyaletey saying dollar sales from the central bank and mining sectors were meeting importer demand.
Access Bank Ghana trader Biggles Amponsah said expected dollar flows from mining support and oil and gas services firms next week could boost the cedi. "I expect it to touch the 1.58 levels somewhere next week," Amponsah said.
ZAMBIA The kwacha is likely to get a boost from higher copper prices and signs that Europe's leaders are finally getting to grips with the region's debt crisis, lifting investors' appetite for riskier frontier market assets. The kwacha traded between 4,600 and 4,850 for much of 2011 but retreated to as low as 5,150 in the immediate aftermath of a surprise September election victory by long-time opposition leader Michael Sata.
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