Kenya and Uganda's shillings could weaken next week as import-oriented companies restart operations after the Christmas break, stimulating demand for dollars.
KENYA The Kenyan shilling is expected to weaken in the next week as importing firms re-open after the holidays and drive up demand for dollars. "We will target 81.00 and probably go below 81.00 because we will see corporate customers coming in next week and defining the direction," said Solomon Alubala, head of trading at Co-operative Bank.
The shilling has traded in a tight 80.40-80.80 band for most of December as dollar-buying by the central bank blunted the effect of vibrant tourism and higher remittances from Kenyans living abroad. Tourism, the third largest hard-currency earner in the east African nation last year, usually peaks in December and Kenyans living abroad send increased amounts of money home during the holiday season. The central bank has bought 5 million pounds and $8 million this week, adding to millions more purchased in the course of the year.
UGANDA Uganda's shilling is likely to weaken amid apparent reluctance by the central bank to step in to support the unit. Commercial banks in Kampala quoted the shilling at 2,312/2,317 against the greenback last Thursday at 2,293.
"We anticipate the unit generally to remain on (the) weaker side through early January," said Faisal Bukenya, head of market-making at Barclays Bank Uganda.
Lucas Ochieng, a trader at Orient Bank Uganda, said some banks had taken dollar positions to entice the central bank to intervene, but that had not happened. "The central bank seems reluctant to intervene and appears to have left the shilling to chart its own course. All indications are that the depreciation trend will sustain in the coming days," he said. Trader said the shilling was likely to oscillate between 2,310 and 2,335 in the week ahead.
TANZANIA The Tanzanian shilling weakened against the dollar on Thursday in thin trade and was expected to remain range-bound due to weak demand for the greenback, traders said.
Commercial banks quoted the unit at 1,483/1,488 to the dollar compared with 1,465/1,475 at the close last Thursday. "Being the end of the year, there is no substantial demand for dollars to make the shilling weaker," said Patrick Kapella, a trader at Bank of Africa Tanzania.
Traders said they expected the shilling to trade in the 1,480-1,490 range in the coming days. "The shilling strengthened earlier this month because of liquidity problems. Investors were converting dollars into the local currency to pay provisional taxes before the December 31st deadline," said National Bank of Commerce trader Hezron Msigwa.
"There is nothing to support a strong shilling at the moment. There are no inflows coming in; we expect the shilling to depreciate further in the January-March period due to heavy trading activities." Between last Thursday and Wednesday, the central Bank of Tanzania traded $46.33 million on its Interbank Foreign Exchange Market, according to statistics on its website.
ZAMBIA The kwacha is expected to continue trading thinly until banks and corporates return from holiday in the second week of January. Commercial banks quoted the kwacha at 4,800 to the dollar on Thursday compared with 4,685 a week ago but traders said the swing was exaggerated by the sparse holiday trade. "Even a little activity will reflect in a thin market," one commercial bank trader said.
GHANA Seasonal selling pressure on the cedi that took the unit to close to its mid-2009 low of 1.4995 against the dollar will start to ease as the holiday shopping period ends. The cedi has dropped from 1.45 to 1.4865 in December due to increased Christmas demand from importers, but Jacob Brobbey of Barclays Ghana said that effect should now be over and the unit should hold around its current level.
"January is a strategy month so I don't expect much activity," he said. Access Bank's Kwabena Yeboah said the West African country's unit may be starting to stabilise following a scramble for dollars by importers during December.
Mexican peso Mexico's peso firmed on Friday as the currency notched a 6 percent gain for the year, boosted by a strong recovery in exports to top trading partner the United States. The peso firmed 0.29 percent to 12.36 per US dollar on Friday. Local markets in other major economies were closed for the New Year's eve holiday.
Some analysts are sceptical that the Mexican currency will be able to match its solid gains seen this year in 2011. "Investors should not extrapolate the Mexican peso's outperformance in 2010 to 2011," said Jimena Zuniga, an analyst at Barclays Capital in New York.