A rate cut by Uganda's central bank this week, the fifth in a row, is likely to weaken the shilling as foreign investors back out of the country's increasingly low-yielding debt. Kenya's shilling is expected to hold steady.
UGANDA: Uganda's shilling is forecast to lose ground against the dollar over the next week as offshore investors lose interest in Ugandan debt and the central bank's interest rate cut spurs greenback demand. Commercial banks quoted the currency of east Africa's third largest economy at 2,550/2,560, weaker than last Thursday's close of 2,540/2,550.
The Bank of Uganda on Tuesday pursued its easing cycle, lowering the Central Bank Rate (CBR) to 13 percent, a move which on Wednesday pushed benchmark 91-day Treasury yields to 9.7 percent at an auction, down from 10.0 percent. Traders say the decline in government bond yields will deter the offshore investors who had kept the shilling strong. "The shilling is likely to oscillate in a narrow range of 2,540-2,470 but with this prospect of a likely upswing in credit soon, its vulnerability to depreciation will remain elevated."
KENYA: Kenya's shilling is expected to be range-bound next week, with inflows from tea exports offsetting poor demand for dollars. The shilling traded at 84.80/85.00 per dollar, firmer than last Thursday's close of 85.25/45. Duncan Kinuthia, head of trading at Commercial Bank of Africa, expected muted dollar demand from importers to continue into next week but inflows from the weekly tea auction to provide support.
TANZANIA: Tanzania's shilling is expected to firm against the dollar. "The shilling has strengthened a bit compared to last week, largely thanks to inflows from agriculture and a slowdown in demand for dollars from importers," said Fred Siwali, a dealer at CRDB Bank. Commercial banks in Dar es Salaam quoted the shilling at 1,566/1,576 to the dollar on Thursday, marginally stronger than 1,570/1,580 a week ago. Traders said they expect the shilling to stay around 1,560-1,570 for now. The Bank of Tanzania said on its website that it traded $25.45 million on the interbank foreign exchange market over the past week.
ZAMBIA: The Zambian kwacha is expected to firm next week as companies convert dollars to pay local taxes due next Friday. Commercial banks quoted the kwacha at 5,050 from 5,080 a week ago. "Looking at current trends, the currency pair is likely to trade in a range of 4,990/5100 per dollar," Cavmont Bank treasurer Mudenda Syamujaye said.
NIGERIA: The naira is seen slightly weaker next week as importers take advantage of recent rallies in the currency to bring forward foreign payments. "NNPC has sold about $200 million to some lenders this morning and this is pushing up the naira's value," one dealer said.
The naira has hovered around 157-158 to the dollar in the last two months, helped by offshore investors buying local debt after the inclusion of Nigerian bonds in a benchmark J.P. Morgan index, and by oil firms exchanging dollars for naira to meet local obligations. Traders said they expected more inflows from offshore investors and the NNPC next week but a possible increase in dollar demand from importers could weaken the naira slightly.
GHANA: Ghana's cedi (GHS) is expected to rally further against the dollar next week due to central bank support and improved greenback inflows. "The local unit looks well placed to post some further gains next week to trade below 1.8900 in the broad 1.8800 to 1.8875 range," Barclays Bank Ghana chief trader Kobla Nyaletey said.
"The presence of some major dollar sellers on the market in addition to central bank readiness to support the market will be the driver," Nyaletey said. Analysts believe the drawdown of the loan helped shore up the cedi, which slumped nearly 20 percent in the first half of this year as local firms sought dollars to pay for imports.