Naira takes a breather after strong rally

NAIROBI: After a major rally in the last three days, Nigeria's naira may falter due to a shortage of dollars among domestic banks, while Zambia's kwacha is likely to gain slightly as foreign companies get ready to pay local taxes.

NIGERIA

The naira weakened against the dollar on the interbank market on Thursday due to strong forex demand from banks and may ease further in the absence of expected dollar sales from state-owned energy company NNPC.

Traders said they believed NNPC had sold its dollars to the central bank, leading to acute interbank dollar shortage.

The naira was trading at 160.30 to the dollar at 1125 GMT compared with Wednesday's 157.10 close.

The central bank hiked its benchmark interest rate by 275 basis points to 12 percent this week and introduced other tightening measures to defend the naira, which had been teetering on the brink of devaluation.

The currency jumped 6 percent from a record low of 167.8 immediately before the central bank's move, but dealers said that rebound would falter unless the immediate dollar scarcity was brought to an end.

"The outlook favoured appreciation of the naira in view of the measures taken by the central bank to support the currency, but the interbank market is presently short. That is the reason for the depreciation today," one dealer said.

South Africa's ABSA Capital said in a note it did not expect the naira to appreciate from its current levels due to reluctance at the central bank to dig too deeply into reserves that hit a six-year low of $31 billion this week.

ZAMBIA

The kwacha is expected to post modest gains due to an increase in dollar supply from companies selling foreign exchange in order to pay quarterly local taxes.

The currency of Africa's top copper producer was at 4,940 to the dollar on Thursday, a shade firmer than 4,960 a week ago.

"The rally in copper prices in recent days, coupled with the weakening of the dollar against major convertibles, could give some support to the kwacha," Cavmont Bank treasurer Mudenda Syamujaye said.

"The kwacha could trade levels of around 4,870 to 4,970."

However, as with most emerging or frontier units, the kwacha is likely to be volatile as fears about euro-zone debt and global growth ebb and flow, affecting investors' appetite for riskier assets.

Zambia's currency has traded in a 4,600 to 4,840 band for much of the last 12 months, although in the run-up to the Sept. 20 election it fell to a 14-month low beyond 5,000 a level that has tended to trigger central bank support.

GHANA

The cedi is hovering around record lows of 1.63 to the dollar, with its immediate future hanging on the amount of offshore interest in a 300 million cedi 3-year bond auction on Thursday.

Standard Bank's Christopher Nettey quoted the cedi at 1.6305/30, a decline of more than 7 percent from July, when the currency of the West African cocoa producer started its slide.

Initial signs suggest cedi weakness is dampening foreign interest in the bond issue, which is open to outside investors.

"Interest from offshore buyers in the cedi has been mute so far," Nettey said. "The market is waiting to see the outcome of the auction and the level of interest attracted." Jacob Brobbey of Barclays Bank concurred.

"If there is significant offshore participation in the bond auction, the cedi will gain from tomorrow to Monday," Brobbey said. "If not we expect it to continue to depreciate further. We are not seeing much offshore interest in today's bond auction but the day is still young."

Brobbey said that he expected today's session to remain calm "with the odds favouring US dollar buying."

KENYA

Dollar demand from Kenya's energy and telecoms sectors are expected to keep the ailing shilling under pressure although traders expect some form of liquidity tightening from the central Reuters

East African central bank governors said on Wednesday they would work together on tightening monetary policy in a bid to stem exchange rate volatility and curb speculation.

Commercial banks quoted the shilling at 103.80/104.00 against the dollar, weaker than last Thursday's close of 102.30/60.

"Oil and telecoms guys are likely to come in picking dollars after the gains, weakening the shilling again," said a trader at a commercial bank.

"But the market also expects further tightening by the central bank after yesterday's statement."

Down 23 percent against the dollar this year, the shilling slumped to a record low of 107 on Tuesday amid heavy importer demand for greenbacks as a central bank initiative to sell foreign exchange directly to companies fell apart.

The currency has since firmed 3 percent, helped by tea sector exporters pulling in dollars and offshore banks taking profits.

"Shilling gains may be short-lived as importers will come in buying dollars at lower rates. Sentiments are still for a weaker local currency," said a trader at one commercial bank.

TANZANIA

Tanzania's shilling hit another record low this week, at 1,712.48 to the dollar, and may well fall even further amid few signs of any decent dollar inflows.

The latest all-time low came after the central bank governor said on Oct. 7 he would not intervene to defend the currency.

"There is no demand for dollars in the market.

At the same time there are no inflows of dollars, so if any big demand comes in, we expect the shilling to fall back to 1,710 levels," said Boniface Mwambene, a trader at National Bank of Commerce.

Traders said they expected the shilling to trade in the 1,700-1,710 range over the coming days.

"The shilling has seen some improvements from previous levels. Some banks may be forced to offload dollars because of a liquidity squeeze so this should benefit the shilling," said Hamisi Mwakibete, head of trading at Commercial Bank of Africa, Tanzania.

"The central bank has been coming into the market but at relatively low volumes, which will not likely influence any movement of the shilling either way," he said.

Tanzania's central bank has traded $47 million on the interbank foreign exchange market in the past week, the bank said on its website.

Copyright Reuters, 2011