The Ugandan shilling could remain under pressure after the finance minister announced a 71 percent increase in spending for the 2015/16 fiscal budget, while Kenya's currency may struggle owing to a widening deficit.
The local currency closed at 3,155/3,165 to the dollar, weaker than 3,075/3,085 a week ago. So far this year the local currency is 12.3 percent weaker against the greenback.
"We have been going through a panicked buying mode and definitely this spending jump will not help matters," said David Bagambe, trader at Diamond Trust Bank, adding that the central bank may help prevent a drastic weakening of the shilling.
At close of trade, commercial banks quoted the shilling at 97.05/15 to the dollar versus 96.00/10 a week ago. "We still maintain the shilling should be weakening further," said a trader at one major commercial bank in Kenya. "The gap between revenue and expenditure will become bigger and we need to see how they will recover that."
"The shilling will likely surpass 2,200 levels next week as demand continues to grow," said Sameer Remtulla, a dealer at Commercial Bank of Africa Tanzania.
Traders were hopeful that Africa's biggest economy would restore liquidity to currency markets after it imposed restrictions on the forex markets in February. "We are looking forward to a quick reversal of the tight control imposed on the forex market soon because of the concern raised by the J.P. Morgan on the liquidity level in the market," one dealer said.
Commercial banks quoted the currency of Africa's No 2 copper producer at 7.2800, weaker than 7.2000 a week ago. "We have seen the kwacha trade on the backfoot despite the Treasury bill auction today. This gives us reason to believe that off shore interest in the local securities has subdued," one commercial bank trader said.