African currencies outlook: Uganda shilling to remain on the ropes

November 18, 2012

RECORDER REPORT

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The Ugandan and Tanzanian shillings are expected to come under pressure next week because of a surge in dollar demand from domestic importers, while the Ghanaian cedi is expected to benefit from a $650 million syndicated loan. Uganda's shilling is forecast to struggle against the dollar in the coming week as a spike in demand from fuel firms and other importers adds further pressure on already tight dollar supplies.

On Thursday, commercial banks quoted the shilling at 2,605/2,615, weaker than last Thursday's close of 2,587/2,597. Pressure has been mounting on Uganda's currency this week, mainly driven by importers looking to stock goods for Christmas holiday shoppers. The shilling has shed nearly 5 percent of its value in the year to date.

TANZANIA: Tanzania's shilling is similarly likely to suffer i the week ahead, weighed down by strong importer demand for dollars from the oil sector and diminishing dollar inflows. Commercial banks quoted the shilling at 1,598/1,604 to the dollar on Thursday, weaker than 1,592/1,597 a week ago. "Unless the central bank intervenes, we will still see the weakening of the shilling to probably 1,600/1,605 levels next week as the market still lacks inflows to help the local currency," said Hamisi Mwakibete, head of trading at Commercial Bank of Africa Tanzania.

KENYA: Kenya's shilling is expected to hold ground against the dollar next week, helped by a tightening of liquidity as companies pay taxes and as investor appetite for government paper grows. On Thursday it was trading at 85.65/75 per dollar, 0.4 percent weaker than last Thursday's close of 85.30/50. Traders said payment of value-added taxes (VAT), which are due around the 20th of every month, would help tighten liquidity in the market as companies withdrew money from banks.

GHANA: Ghana's cedi could gain marginally against the dollar next week on weak dollar demand, helped by improved inflows as the central bank draws down on a syndicated loan. The central bank said it is expecting to receive $650 million early next week, the final tranche of a $1.5 billion syndicated loan from international banks for the 2012/13 cocoa purchases.

The cedi held steady at 1.8775 versus the dollar on Thursday, a day after the Bank of Ghana maintained its policy rate at 15 percent for the third time in a row. "We should expect the cedi to improve marginally next week albeit remaining within the 1.87/6 band, owing to the monetary policy rate being maintained yesterday at 15 percent," Databank analyst Sampson Akligoh said.

NIGERIA: The naira is seen stable around 157.70-158 to the dollar next week on anticipated dollar inflows from offshore investors buying local debt and pockets of selling by some oil companies. The local currency was trading at 157.90 to the dollar on the interbank market on Thursday, weaker than the previous day's close of 157.75, due to increased buying from importers.

Traders attributed the jump in dollar demand to the decision by state-owned energy company NNPC to sell its hard currency to the central bank instead of to local banks, forcing the lenders to buy dollars to cover their positions. "We see the naira stable around the 157-158 level next week as dollar flows from offshore investors buying local debt next week should counter the rising demand in the market and provide support for the naira," one dealer said.

ZAMBIA: The kwacha is likely to remain on the back foot next week due to increased dollar appetite mainly from the energy and telecommunications sectors. Commercial banks quoted the currency on Thursday at 5,195 to the dollar, down from 5,160 a week ago. "With little local news to drive the exchange rate, the kwacha will probably follow global sentiment, tracking the South African rand and the euro," one commercial bank trader said. Zambia's kwacha slid to 5,265 against the dollar a fortnight ago, its weakest in more than four months, as the impact of a law limiting the use of dollars in everyday transactions showed signs of wearing off.