African currencies outlook

All eyes are likely to be on Nigeria's central bank next week to see whether it is going to allow the mid-point of its naira trading band to weaken, while Kenya's shilling is likely to gain on the back of aggressive monetary tightening.
NIGERIA The naira is likely to depreciate next week because of uncertainty over a central bank review of its target band for the currency. The central bank has been trying to keep the naira in a +/- 3 percent band around 150 to the dollar, but Governor Lamido Sanusi told Reuters on Monday the bank would review that framework in the next few days.
Depending on where the exchange rate settled, it may move the midpoint to 155/156 to the dollar, he said. Traders said the naira closed weaker at the bi-weekly auction on Wednesday as the regulator sold only $180 million at 150.73 to the dollar, short of the $262.96 million demanded, and $200 million at 150.25 to the dollar on Monday. However, the central bank has continued to sell additional dollars directly to some lenders outside the regular bi-weekly auction as part of its measures to support the local currency.
KENYA Kenya's shilling is seen firming, helped by tight liquidity in the money market after a surprisingly aggressive central bank rate raise and an expected increase in offshore investors in fixed income securities. The central bank stunned the market this week with record 550 basis point increase in its benchmark lending rate to 16.5 percent, hot on the heels of a 400 basis point rise early last month. The shilling has rallied 1.7 percent on the rate decision, though its gains have been checked by oil importers taking advantage to buy greenbacks.
UGANDA Another round of monetary tightening this week is seen firming the Ugandan shilling , although an announcement by the central bank that it was doubling its daily dollar purchases may check those gains. Commercial banks in Kampala quoted the local currency at 2,615/2,625 against the dollar, slightly stronger than last Thursday's close of 2,625/2,635.
The Bank of Uganda (BoU) has been tightening its monetary policy screws since July, when it introduced a benchmark Central Bank Rate . It has raised the rate every month since to tame a rampant inflation. The shilling fell as much as 0.9 percent against the dollar in the two days after Tuesday's rate announcement as banks bolstered their dollar positions, before recouping some of the losses.
TANZANIA Tanzania's shilling is expected to gain next week due to increased dollar supply and central bank monetary tightening, traders said. Commercial banks in Dar es Salaam quoted the shilling at 1,755/1,765 against the dollar, stronger than last Thursday's close of 1,820/1,830.
"The outlook is for a stronger shilling ... the (central) Bank of Tanzania has increased the supply of dollars in the market this time and is communicating a lot with customers to meet their demands," said Hakim Sheikh, a trader at Commercial Bank of Africa, Tanzania. "The central bank is directly selling dollars to oil importers via commercial banks to avoid some banks holding on to dollars for speculation. They supply the dollars and set the maximum margin at which banks can sell the forex to customers."
Traders said they expected the shilling to trade in the 1,750-1,760 range in the coming days. "The central bank has intervened by selling dollars to oil importers. If the central bank continues to support the shilling, we expect it to gain next week," said Fred Siwali, a dealer at CRDB Bank. Traders said the shilling was also benefiting from mining companies selling dollars to meet month-end salary and tax commitments. The central bank said it had traded $58.76 million on the interbank foreign exchange market in the past week.
ZAMBIA The kwacha is likely to soften against the dollar in the coming week due to continued uncertainty on the resolution of Europe's crisis and rising demand for hard currency. The currency of Africa's top copper producer lost 2.3 percent against the dollar on Thursday to 4,960 from 4,850 a week ago. "Market sentiment is in favour of a weaker kwacha. It will largely depend on what happens to the euro. There is still a lot of appetite for the dollar, which hasn't been met," one commercial bank trader said.
The kwacha traded between 4,600 and 4,850 for much of 2011 but retreated to as low as 5,150 in the immediate aftermath of a surprise September election victory by long-time opposition leader Michael Sata.
GHANA The cedi will remain under pressure on the back of increasing dollar demand from importers and offshore investors, traders said. The cedi remained weaker than the psychologically key 1.6 level on Thursday after closing at 1.6000/25 on Wednesday, Barclays Bank Ghana Treasury head Kobla Nyaletey said. "It will trade comfortably above 1.6000 next week," he said.