Naira set to rise as cedi holds firm

JOHANNESBURG: Nigeria's currency is expected to strengthen against the dollar next week as energy companies begin their month-end dollar sales, while Ghana's cedi is likely to remain stable due to lower corporate demand for the greenback.

The naira is seen appreciating against the US dollar next week as traders anticipate increased dollar inflows from energy companies and a sustained supply of the greenback to exchange bureaus by the central bank.

Nigeria's central bank sold $10 million to each bank operating a bureau de change at the bi-weekly auction on Wednesday. The move initially cut back demand on the interbank market and, combined with inflows from two energy firms, the local currency strengthened marginally at the interbank.

The naira was trading at 154.95 to the dollar on the interbank market on Thursday, weaker than the 154.30 at Wednesday's close as supply failed to meet demand at the official window then.

"Demand for the dollar remains strong as a result of unmet demand at the official window on Wednesday that has channelled to the interbank," one trader said.

The central bank sold $400 million at 152.10 to the dollar at its bi-weekly foreign exchange window on Wednesday, short of the $558.38 million demanded.

"We anticipate an increase in dollar inflows next week from the usual month-end sales cycle by energy majors and this should provide needed support for the naira," another trader said.

Many of the energy companies operating in Africa's top crude exporter sell dollars monthly to lenders to obtain naira for their domestic operations.

Dealers said they are expecting the central bank to sustain the supply of dollars to the bureaux de change window in the coming week to help close the gap between the exchange rate at the official window and other segments of the market.

The cedi is expected to continue to hold firm in the coming week due to lower corporate demand for dollars, traders said.

Jacob Brobbey of Barclays Bank quoted the interbank cedi-dollar exchange rate at 1.5250-75 at 1020 GMT, slightly down from its open of 1.5240-65.

"I expect the cedi to be relatively stable throughout next week and to trade within the 1.5250-15290 range," Brobbey said.

The cedi held firm against the dollar on Wednesday due to low corporate demand for the US currency.

Christopher Nettey of Standard Bank said he expected cedi-dollar exchange to remain stable over the next week.

"The Ghana cedi has traded flat week-on-week at 1.5245/60, trading in a tight range of 1.5230-1.5275 for the week under review on the back of subdued market activity and central bank support," Nettey said. "We expect the pair to remain in the current range into next week."

Biggles Amponsah of Access Bank said he expected the cedi to hold firm or depreciate slightly over the next week.

"I don't see the pair trading beyond 1.5275 over the next week," Amponsah said.

Kenya's shilling is expected to get support against the dollar from rising interbank lending rates as the central bank's tightening of its overnight borrowing rules has made it costlier to hold the US currency.

At 0842 GMT, commercial banks quoted the shilling at 92.80/93.00 to the dollar, down from 92.75/95 at last Thursday's close.

Traders said the shilling was expected to keep gaining due to a lack of liquidity after the Central Bank of Kenya revised its overnight borrowing rules in mid-August.

"With no end in sight on the liquidity front, the shilling is sitting bullish and could tuck in more gains against the dollar ahead of the weekend," Commercial Bank of Africa said in a market report.

The weighted average interbank lending rate rose to 24.25 percent on Wednesday, from 22.29 percent a day before, and from 8.34 on Aug. 12, when the Central Bank of Kenya tightened its overnight borrowing rules.

The rising rates have increased the premium for holding shillings instead of dollars to more than 20 peReuters

"I think the same factors should continue driving the market in the coming days. I think the next support level is 92.00. It's a question of whether the currency is going to break 92.00," said Solomon Alubala, head of trading at Co-operative Bank.

Traders later said the shilling's gains could be limited after the Finance Minister on Thursday called for a stabilisation of monetary policy without giving details.

"The comment on monetary policy tightening may have been the trigger because any attempt to cool off the interest rates may see the currency slide," said a senior trader at one commercial bank.

The shilling has lost 15.2 percent in the year to date, but is still off a record low of 94.85/95.05 hit on Aug. 9.

Tanzania's shilling will likely continue to trade in a tight range in the coming days, with traders expecting it to come under mild depreciation pressure due to demand from the oil sector.

Commercial banks quoted the local currency at 1,622-1,625 to the dollar, compared with 1,623/1,628 at last Thursday's close.

The shilling traded at an all-time low of 1,627 to the dollar on Aug.18. In the year to date it has weakened by 9.71 percent against the dollar.

"There hasn't been much movement over the past week because demand is being matched by supply. Whatever is available in the market is easily absorbed," said Hamisi Mwakibete, head of trading at Commercial Bank of Africa Tanzania.

"The currency has been trading in a very tight band. Most of the corporate customers are shying away from entering the market at the current exchange rate."

Traders said they expected the shilling to trade in the 1,620-1,625 range in the coming days.

"We expect trading activities to start picking up in mid- September after the end of the holy month of Ramadan," Theopistar Mnale, a trader at Tanzania Investment Bank said.

"We have seen some inflows from proceeds of cotton exports, but these haven't been significant enough to move the market."

In the week to Wednesday, the Central Bank of Tanzania traded $18.15 million on its Interbank Foreign Exchange Market, according to statistics on its website.

The kwacha is expected to trade sideways next week as the market looks ahead to presidential elections next month.

Commercial banks on Thursday quoted the currency of Africa's top copper producer at 4,951 against the dollar from 4,940 a week ago

"We expect the kwacha to be range-bound in the band 4,940-4, 990," one trader said.

The currency has traded in the 4,600-4,800 bands for most of the last 12 months.

Analysts attribute the currency's weakness to a sharp fall in copper prices as well as political nervousness ahead of the Sept. 20 elections.

Copyright Reuters, 2011