Here’s why the Kenyan and Ugandan shilling could drop against dollar in coming week

PUBLISHED: Fri, 15 Jun 2018 13:33:36 GMT

NAIROBI, June 14 (Reuters) – The Kenyan shilling and Ugandan shilling could come under pressure against the dollar, while the currencies of Tanzania and Ghana are forecast to remain stable.

The Kenyan shilling could weaken against the dollar in the coming week because of importer demand triggered by a favourable dollar rate, though inflows from portfolio investors are expected to provide support, traders said.

Commercial banks quoted the shilling at 100.95/101.15 per dollar, the same as last Thursday’s close.

“Improved inflows from remittances and private equity activity … I expect the importers who are holding off to come back if it strengthens, so we could see a retracement,” said one senior trader from a commercial bank.

The Tanzanian shilling is expected to trade in a tight range against the U.S. dollar in the days ahead, helped by inflows from the mining and agriculture sectors.

Commercial banks quoted the shilling at 2,275/2,280 to the dollar on Thursday, compared with 2,270/2,280 a week ago.

“The demand for dollars is more or less matched by inflows of the U.S. currency from mining companies and cotton exports,” said a trader at CRDB Bank.

Ghana’s cedi could hold steady next week on matching forex inflows, including central bank dollar sales to square off increasing offshore demand, analysts said.

The currency has declined steadily against the dollar since the end of April, partly because of broader weakness in emerging markets assets and a rise in the greenback. It was trading at 4.7017 by mid-morning on Thursday, against 4.7050 a week ago.

Notwithstanding a U.S. Federal Reserve interest rate increase on Wednesday and a rise in Ghana’s consumer inflation in May, the cedi is likely to hold ground against the dollar, Barclays Bank said in a market update on Thursday.

The Ugandan shilling is seen depreciating over the next week, weighed down by intense demand from commercial banks and merchandise importers.

Commercial banks quoted the shilling at 3,845/3,855, weaker than last Thursday’s close of 3,815/3,825.

A trader at a leading commercial bank said that “panic and speculation” would continue to weaken the shilling, which he said is likely to touch 3,900 over the next week.

The shilling has been depreciating at an accelerated rate over the past few weeks and is now down 5.3 percent against the dollar since the start of the year.

The kwacha is expected to hold firm against the dollar next week on increased supply of hard currency from exporters, which has outstripped demand.

Commercial banks quoted the currency of Africa’s No.2 copper producer at 9.9000 per dollar, stronger than a close of 10.060 a week ago.

“Momentum remains towards kwacha appreciation as the market remains long dollars. The kwacha depreciation over the past weeks was probably overdone and our view is that the market could be correcting itself,” the Zambian branch of South Africa’s First National Bank (FNB) said in a note.

The Nigerian naira is seen flat at about 361 per dollar next week as investors weigh the impact of monetary tightening in United States against expected returns from holding local treasuries, traders said.

Trades were thin at midday on Thursday, with demand for dollars but little supply. The naira last traded at 361.50.

It was quoted at 305.90 on the official interbank market on Thursday, supported by the central bank’s regular interventions.

Wednesday’s U.S. rate rise could trigger a sell-off in the local market as offshore investors exit naira assets. The Nigerian debt office’s latest treasury auction increased yields slightly to draw demand. (Reporting by John Ndiso, Fumbuka Ng’wanakilala, Kwasi Kpodo, Elias Biryabarema, Chijioke Ohuocha, Chris Mfula; Compiled by Maggie Fick; Editing by David Goodman)

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