South Africa's rand slipped against the dollar on Friday in thin trading volumes after a week in which the currency broke out of the range in which it had traded for nearly two months. The rand was at 9.7900 to the dollar at 1521 GMT, down 0.6 percent from its close in New York on Thursday. The currency hit a high of 9.6135 against the dollar on Wednesday, its strongest in eight weeks, after breaking through the key resistance level of 9.80 on Tuesday.
"Going into the weekend ... (in) an exceptionally light liquidity scenario, the moves are probably slightly exacerbated," said William van Rijn, head of the spot desk at Nedbank. Government bond yields nudged higher, rising 7 basis points on the 2026 paper to 8.17 percent and 4 basis points on the 2015 issue to 6.195 percent. The Ugandan shilling weakened on Friday as the central bank bought dollars to boost its reserves and may lose more ground next week due to the rise in local currency liquidity.
At 1136 GMT commercial banks quoted the currency of east Africa's third-largest economy at 2,585/2,595, weaker than Thursday's close of 2,570/2,580. "The central bank was in the market buying dollars I think to boost their reserves and also a bit of corporate demand was trickling in here and there," said David Bagambe, trader at Diamond Trust Bank. He said the central bank was in the market in the morning, and that the suspension of aid to Uganda meant that the central bank was now likely to resort to building its reserves through open market purchases of hard currency and this would fuel a "gradual depreciation trend."
All major western donors last year cut off their largess to Uganda after it emerged that officials had embezzled about $13 million worth of their aid. Uganda's export sector, dominated by a few agricultural commodities, is weak and the country has traditionally partly relied on hard currency inflows in the form of aid to build its reserves and support the shilling. Some traders also say end-month purchases of dollars by importers looking to pay for next month's goods shipments could keep the shilling bearish next week.
A market note from Alpha Capital Partners said shilling liquidity was likely to improve into next week with early signals seen in the drop of rates on overnight and one-week funds in the money market, potentially allowing players to build dollar positions. "I see the shilling trading in the 2,590/2,610 range with importer demand pushing the unit toward the weaker side," said Brenda Akumu, trader at KCB Uganda.
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