KAMPALA: The Ugandan shilling was little-changed on Friday but was seen weakening due to dollar demand from telecom firms although tight shilling liquidity was expected to cushion any fall.
At 0946 GMT commercial banks quoted the shilling at 2,665/2,675, a notch weaker than Thursday's close of 2,663/2,673.
"The market is still receiving significant demand from telecom firms which is keeping the shilling downward," said Faisal Bukenya, head of market making at Barclays Bank Uganda.
The shilling has been under pressure in recent days from dollar demand by firms in the telecommunications and energy sector looking for hard currency to pay dividends.
The central Bank of Uganda was forced to sell an undisclosed amount of dollars to support the shilling, which has lost 5.4 percent against the dollar in the year to date.
Traders said confidence in the local currency was also being sapped by falling yields on government securities that are slowing offshore investor appetite.
Bukenya said the central bank had mopped up excess liquidity on Friday, triggering a liquidity squeeze with overnight interbank borrowing fetching rates between 9-12 percent from between 6-9 percent two days ago.
"I think the next key factor the market is eyeing keenly is next week's bond auction," said Sage Daniel Muganza, trader at Centenary Bank.
A total of 180 billion shillings ($70 million) worth of two and five-year Treasury bonds are up for sale at the auction.
"The shilling depreciation could accelerate faster if rates go down further," he said.
Muganza said the local currency would be supported at 2,690 while its resistance was at 2,660.
The shilling's 14-day and 50-day weighted moving averages also point to a weakening trend for the currency in the near term.
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