WEEKAHEAD-AFRICA-FX-Cedi may test lows, tax season to support E.Africa currencies

ACCRA, June 26 Thu Jun 26, 2014 1:47pm EDT

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ACCRA, June 26 (Reuters) - Ghana's cedi may keep testing new lows next week, while tax season in Tanzania and Uganda should lend support to the east African currencies.

GHANA

Ghana's cedi will remain under pressure against the dollar next week as importers hunt for dollars during a period of poor interbank liquidity, analysts said.

The local unit, which has depreciated 36 percent so far this year, hit a record low of 3.3400/dollar on Wednesday. Dealers said the central bank came into the market on Thursday to ease the liquidity pressure and support the cedi.

It recovered to 3.1900 by midday, but traders say with too few dollars in the market to meet demand, the unit could keep testing new lows.

Barclays Africa forecast the cedi to end the year at 3.6000 to the dollar.

"The risk of a further disorderly move in the cedi exists, particularly as foreign reserves are seen weak," Jeff Gable, Barclays head of Africa research said in a note.

However, a planned eurobond sale of up to $1.5 billion in July, and inflows from a cocoa loan syndication in September could ease the pressure in the short term, Gable said.

The central bank reported that international reserves amounted to $5.1 billion - or 2.8 months of import cover - in early June.

KENYA

Kenya's shilling should receive support from the sale of a debut $2 billion bond last week.

Commercial banks quoted the shilling at 87.75 to the dollar on Thursday, from 87.30 a week ago.

"I think 88 should hold. In the past month, 88 has been protected by the central bank, and now they even have renewed ammunition to do that in terms of the eurobond," said Andlip Nazir, a trader at I&M Bank.

The shilling has lost about 1.7 percent against the dollar this year and has continued to face pressure due to a steep drop in tourist numbers after a series of deadly attacks by Somali Islamist militants, Nazir added.

TANZANIA

The Tanzanian shilling is expected to extend its gains against the dollar next week, buoyed by cotton exports and end of quarter tax payments.

Commercial banks quoted the shilling at 1,660 to the dollar on Thursday, stronger than 1,684 a week ago. Traders said they expected the shilling to trade in the 1,670-1,680 range over the next few days.

"Many corporates are currently offloading dollars to make quarter-end tax payments in shillings," said Theopistar Mnale, a trader at TIB Development Bank.

"Inflows of dollars from the onset of the cotton export season are also expected to help the shilling to extend its rally against the U.S. dollar."

The Central Bank of Tanzania said on its website that it traded $35.5 million on the inter-bank foreign exchange market over the past week.

UGANDA

The Ugandan shilling is forecast to hold steady next week as demand for dollars from importers decreases and companies swap into the local currency to pay taxes.

At 1131 GMT commercial banks quoted the shilling at 2,590, weaker than last Thursday's close of 2,575.

"Demand from corporate buyers has been sort of coming off which could keep the shilling stable around 2,590 levels," said Faisal Bukenya, head of market-making at Barclays Bank.

Other firms were holding off buying dollars at these levels, expecting the shilling to weaken in the longer term.

The local currency came under pressure in the past week as the United States, a major donor, cut back some aid because of Uganda's anti-gay law. The central bank stepped in to support the currency.

NIGERIA

Nigeria's naira currency is seen trading in a tight band next week as additional dollars in the market from state-owned energy company NNPC limit the naira's recent depreciation.

The local currency closed at 162.85 to the dollar on Thursday, not far off a 162.90 close the previous day.

"We see the naira trading within a narrow band next week as some oil companies are still expected to sell more dollars in the coming days," one dealer said.

ZAMBIA

Dealers expect the kwacha will receive support through offshore inflows and month-end transactions, which could take the currency out of its recent range.

The Bank of Zambia earlier this month raised the effective annual lending rate to 28 percent from 21 percent, a move analysts said would attract foreign investors to government securities, boding well for a currency that tumbled to life-time lows in May.

The unit has since recovered and hit three-month highs last week according to Thomson Reuters data.

At 0858 GMT on Thursday, commercial banks quoted the currency of Africa's second-largest copper producer at 6.1050 per dollar, compared with 6.1250 a week ago.

The kwacha was expected to receive a further boost from corporates converting dollars to the local unit to meet month end obligations such as salaries. (Reporting by Kwasi Kpodo in Accra, Drazen Jorgic in Nairobi, Elias Biryabarema in Kampala, Fumbuka Ng'wanakilala in Dar es Salaam, Oludare Mayowa in Lagos and Chris Mfula in Lusaka; Editing by Xola Potelwa)

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