African currencies face pressure

Frontier African currencies may come under slight pressure next week as companies restart full operations after the holiday season and start buying dollars.

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Frontier African currencies may come under slight pressure next week as companies restart full operations after the holiday season and start buying dollars.

KENYA

Kenya's shilling is set for a volatile week against the dollar, with a central bank rate-setting meeting on Jan 11 and importers in the market for dollars.

The shilling fell by as much as 4.8 percent this week to 89.00 to the dollar before recouping most of its losses on Thursday after the central bank mopped up 6 billion shillings through repurchase agreements and sold an unspecified amount of dollars to commercial banks.

At 13:40 SA time, it was quoted at 86.40/60 against the dollar, weaker than last Thursday's close of 85.10/30.

Traders said they expected the shilling to remain volatile if dollar demand from oil importers and the telecoms sector persisted.

“We will have an eye on central bank actions both on the foreign exchange and money markets, and of course the MPC,” a trader at one commercial bank said.

The central bank is expected to hold its benchmark lending rate at 18 percent, but it could keep deploying liquidity management tools such as repos to prevent the shilling from tumbling.

The bank was criticised heavily for failing to act decisively in 2011 after the shilling slumped against the dollar, but has now switched to a hawkish stance against inflation and appears keen to stay ahead of the curve.

UGANDA

The Ugandan shilling is forecast to weaken moderately against the dollar, pressured by demand from the manufacturing and energy sectors and tracking possible weakness in the currency in Kenya, Uganda's biggest regional trading partner.

Commercial banks in Kampala quoted the currency of one of Africa's top coffee producers at 2,447/2,457, significantly firmer than last Thursday's close of 2,500/2,510.

“We're firmly putting the holidays behind us so we expect demand from the big buyers like manufacturing and energy to start coming in,” said Ahmed Kalule, trader at Bank of Africa.

“We're also seeing the Kenyan shilling slipping, and considering the two currencies tend to move in sync we see a depreciation of the Uganda shilling.”

Both currencies tumbled against the dollar in 2011 before they rallying in the latter stages of the year on the back of aggressive monetary policy.

The Ugandan shilling gained 15.5 percent from an all-time low of 2,901 hit on Sep. 23.

The central bank left its key lending rate unchanged at 23 percent for a second time this month after inflation slowed again to 27 percent year-on-year in December from 29 percent in November.

Inflation started to decline after hitting an 18-year high of 30.4 percent in October.

TANZANIA

The Tanzanian shilling is expected to hold steady against the dollar due to a domestic liquidity squeeze and slack demand for foreign exchange due to a sluggish resumption in trading after the holidays.

Commercial banks in Dar es Salaam quoted the shilling at 1,585/1,595 against the dollar, weaker than last Thursday's close of 1,577/1,587.

“The market is currently faced with a liquidity squeeze, so the focus has shifted from trading to funding shilling shortfalls,” said Hamisi Mwakibete, head of trading at Commercial Bank of Africa Tanzania.

Traders said they expected the shilling to trade in the 1,580-1,590 range in the days ahead.

“Tight liquidity has benefited the shilling following monetary policy measures taken by the central bank. That is why we are seeing Treasury bonds and bills being undersubscribed,” said Fred Siwali, a dealer at CRDB Bank.

In October, the central bank raised the statutory minimum cash reserves for commercial banks to 30 percent from 20 percent. It also lowered the foreign exchange net open position limit for banks to 10 percent from 20 percent to curb speculation.

The central bank said it had traded $54 million on the interbank foreign exchange market in the past week.

GHANA

The cedi is expected to inch lower amid firm demand for the dollar but scant supply from large forex-selling companies that are yet to crank up their operations after the holidays, traders said.

Jacob Brobbey of Barclays Bank quoted the interbank cedi-dollar exchange rate at 1.6600/25, slightly firmer than an open of 1.6605/30.

“Forex buyers have started the year strongly, but sellers are yet to get out of the blocks,” he said. “Pressure will persist into next week unless we see improved supply for the traditional sellers such as the mining sector.”

Christopher Nettey of Stanbic Bank said that when the mining sector resumed trading next week and began to sell dollars, the cedi should start to strengthen.

“The demand pressures increased as corporates resumed this week with manufacturing companies and telecoms in the market buying dollars,” Nettey said. “Bigger dollar inflows from the mining companies and other sectors will resume next week.”

NIGERIA

The naira is seen depreciating against the dollar on the interbank market as importers crank up demand for the greenback.

The naira closed at 159.95 to the dollar on Thursday, firmer than its 163.15 close a week ago. It traded at 159.55 on Wednesday.

Traders said demand for the greenback was gradually building up, but inflows from some multinational oil companies on Wednesday had buoyed supply and helped to check a big decline of the naira.

“There have been some dollar inflows in the last few days from oil companies, providing support for the naira. Otherwise we could by now see the naira trading above the 160/$ level,” one dealer said.

Dealers said dollar demand could push the naira above the 160-161 next week unless the central bank cleared all foreign exchange demand at its bi-weekly auction and also sold directly to the market.

“Though we expect more dollar inflows from some oil companies next week, we see the naira losing value because of strong demand unless the central bank shows commitment to support the local currency,” another dealer said. - Reuters

Source: http://www.iol.co.za/african-currencies-face-pressure-1.1208551

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