Kenya’s shilling is seen firming against the dollar due to prevailing high interest rates that have increased the cost of funding long dollar positions.
At 0953 GMT, commercial banks posted the shilling at 85.00/85.20 against the dollar, stronger than last Thursday’s close of 85.70/90.
Mindful of the currency’s dramatic slide against the dollar last year, the central bank has mopped 25.6 billion shillings ($299 million) this month and sold dollars to commercial banks.
Traders said they expected the bank to leave its key lending rate unchanged at 18 percent when it meets to review policy on Wednesday. It would be its second pause after an aggressive series of rate hikes.
“The shilling is bullish into next week. Its outlook is bright mostly on central bank support,” said a trader with one commercial bank.
“We don’t expect the MPC to tinker with rates yet since inflation is still high and they may want to see it lower than this.”
Traders said they expected gains to be curbed by importers buying dollars to meet month-end needs, but offshore interest in government securities could lend support.
Dickson Magecha, a trader at Standard Chartered Bank, said high yields on Kenyan government securities were enticing foreign investors, leading to high subscription rates in recent auctions.
The Ugandan shilling is expected to maintain its four-month rally against the dollar, lifted by inflows from offshore investors looking for high-yielding government debt.
The currency of east Africa’s third largest economy closed at 2,360/2,370 on Wednesday, significantly stronger than last Thursday’s close of 2,395/2,405.
Ugandan markets were closed on Thursday for a holiday.
“We have seen inflows into this week’s auction give the shilling a big boost and I think the trend will hold for the next few days since we have another auction next week,” said Ahmed Kalule, a trader at Bank of Africa.
On Wednesday, the Bank of Uganda sold 91-, 182-, and 364-day treasury bills worth 89.8 billion shillings ($38.05 million).
The auction was heavily oversubscribed, with the yield on the 91-day paper at 23.4 percent from 22.9 percent at the previous auction.
Next week, the bank is due to auction a five-year Treasury bond worth 95 billion shillings with a coupon of 10.75 percent.
“We’re anticipating huge interest in this bond from foreign markets if recent trends are any guide and if that happens against the prevailing lacklustre demand, the dollar will remain bearish,” said a dealer from a leading commercial bank.
The shilling is up 5 percent against the dollar this year, and more than 25 percent firmer against a record low of 2,901 hit last September.
The Tanzanian shilling is likely to weaken against due to dollar demand from the energy and manufacturing sectors.
Commercial banks in Dar es Salaam quoted the shilling at 1,597/1,607 to the dollar on Thursday, weaker than 1,589/1,599 a week ago.
“The liquidity situation has improved and people are now starting to take a more active role in the foreign exchange market,” said Patrick Kapella, chief dealer at First National Bank Tanzania.
Kapella said the central bank was not mopping up excess liquidity to the same extent as November and December.
“Demand for dollars from corporates who are returning from holidays is also starting to pick up,” he said.
Traders said they expected the shilling to trade in the 1,600-1,610 range in the days ahead.
In the past week, the Bank of Tanzania traded $35.09 million on the interbank FX Market, it said on its website.
The cedi is expected to stabilise on the firm side of 1.7 to the dollar due to continued dollar-selling by the central bank, traders said on Thursday.
The cedi has been stable since last week on consistent central bank support after plunging to a record low of 1.74 in the first half of January. It was trading at 1.6950/75 on Thursday.
Barclays Bank Ghana chief trader Kobla Nyaletey said the central bank would like to see the cedi below 1.7 for the short term and would continue its support next week.
“The central bank is happy with the current levels and I predict it may even increase the level of intervention just to keep it there,” he said.
Some major mines are also expected to sell dollars on Thursday, further consolidating the rate below 1.7, he added.
Christopher Nettey of Stanbic Bank Ghana projected that with consistent dollar inflows, the unit could even touch 1.67.
“The more the central bank continues to show its commitment, the more we’ll see the cedi stabilising,” he said.
The naira is likely to ease next week due to rising demand for the dollar as importers and businesses step up their activities after a week-long strike in protest at the withdrawal of fuel subsidies.
The naira, which traded at a three-week high on Wednesday after large dollar sales by multinational energy companies, came back to 160.27 on Thursday as dollar demand returned.
It closed at 160.05 on the interbank market on Wednesday.
Energy companies have sold more than $800 million to banks in the last two weeks, boosting dollar liquidity and helping strengthened the naira.
But traders said increased business activity after the strikes meant hard currency demand would rise, and depress the naira.
Dealers said additional $33.5 million inflows from Chevron and Schlumberger on Thursday had not had any major impact.
“The naira is trending up gradually and may continue to trade above the 160 naira level in the coming days because of rising demand from businesses,” one dealer said.