Central banks in Kenya and Nigeria are expected to pump dollars into their financial markets to cushion their currencies as investors worldwide dump risky assets after the US heralded an end to its bond-buying programme. The Nigerian naira is seen stable around 160 to the dollar in the near term as the central bank moves to provide support for the currency in the face of dwindling greenback supply.
The naira was trading around 160.9 to the dollar on the interbank market, weaker than its 159.90 close the previous day, but firmer than the 161.35 it closed against the dollar a week earlier. The naira had been under pressure from strong demand for the greenback from offshore investors exiting their positions in local debt. The naira fell to 162.7 to the dollar, its worst position in almost a year last Friday.
But the central bank has consistently sold dollars directly to some banks outside its usual twice-weekly foreign exchange auction in its bid to support the naira. The Kenyan shilling is seen weakening further in coming days as importers buy dollars to meet their end-of-month supplies, but a hawk-eyed central bank could intervene.
The shilling has been under pressure since east Africa's biggest economy proposed a capital gains tax while a broad sell-off of emerging markets assets over the US Federal Reserve's move adds to the bearish sentiment. "The shilling could fall through 86.00 if end-month demand for dollars is heavy next week," one trader said, adding the prospect of the central bank intervention was likely to cap further losses.
The bank intervened for the first time in four months on May 29 to sell hard currency after the shilling slipped to an eight-week low. The Ugandan shilling could weaken, pressured by importers buying dollars and foreign investors exiting local markets after the US Federal Reserve signalled it would begin to slow the pace of stimulus later this year.
"We expect it to depreciate. There's been a bit of dollar demand from corporates and also demand from off-shores," said Brenda Akumu, a trader at KCB-Uganda. Commercial banks posted the shilling at 2,602/2,612 per dollar, 0.8 percent weaker than last Thursday's close of 2,587/2,597.
The shilling is still 3.1 percent stronger this year, but analysts expect it to gradually weaken in the medium- to long-term as the effect of a 100 basis points rate cut this month filters through. The Tanzanian shilling is expected to strengthen marginally in the coming days, supported by dollar sales from corporates paying full-year taxes due at the end of June.
Traders quoted the shilling at 1,635/1,645 to the dollar on Thursday, stronger than 1,642/1,647 a week ago. "The shilling will likely strengthen next week as we approach the end of the second quarter due to corporate clients selling dollars to meet their end of quarter obligations," said Patrick Kapella, chief dealer at FNB Bank Tanzania. Market participants said the shilling was likely to trade in the 1,630-1,640 range over the coming days.
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