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UPDATE 1-AFRICA FX-Kenyan, Ghana currencies seen weaker on rising dollar demand
March 27, 2014 / 6:11 PM / 4 years ago

UPDATE 1-AFRICA FX-Kenyan, Ghana currencies seen weaker on rising dollar demand

(Adds Nigeria currency outlook)

NAIROBI, March 27 (Reuters) - The Kenyan shilling and Ghana cedi are expected to weaken next week on dollar demand from importers, but the Uganda shilling and Zambia’s kwacha are expected to firm on interbank selling and conversions into local currencies to pay taxes.

KENYA

The Kenyan shilling is expected to be under pressure in the next week as importers, mainly from the energy sector, buy dollars to meet their month-end obligations.

Commercial banks quoted the shilling at 86.65/75 against the dollar, down slightly from last Thursday’s close of 86.45/60. Traders said it was likely to trade in a band of 86.50-87.00.

“My expected direction from here is for a weaker shilling towards 87 as we head into dividend season,” said a trader at a commercial bank, referring to additional dollar demand from companies looking to pay dividends to their foreign shareholders.

The central bank has mopped up liquidity from the market several times this month after overnight borrowing rates tumbled, exposing the shilling to weakness from banks funding long dollar positions.

NIGERIA

Nigeria’s naira is expected to trade within a narrow band next week after the central bank tightened liquidity.

The naira was stable at 164.90 to the dollar on Thursday in thin trade, unchanged from the previous day’s close.

Traders said a unit of oil company Chevron sold about $55 million to some lenders on Thursday, boosting liquidity in the market.

The central bank kept interest rates on hold for the 15th time in a row on Tuesday but hiked its cash reserves requirement on private sector deposits by 300 basis points to 15 percent.

On Wednesday, Godwin Emefiele was confirmed central bank governor designate by parliament and he said he would sustain support for the naira, according to local media. Traders said this would calm the market and reduce pressure on the local currency.

“We expect stability in the market around the present band of 164.60-165 to the dollar, as we digest both the monetary policy decision and the pronouncement of the central bank governor designate,” one dealer said.

Month-end dollar sales by oil companies could also provide support for the naira around the present band.

UGANDA

The Ugandan shilling was forecast to trade stronger over the next week, helped by soft corporate dollar demand and month-end dollar inflows from charities.

At 0851 GMT commercial banks quoted the currency of east Africa’s third-largest economy at 2,540/2,550, weaker than last Thursday’s close of 2,535/2,545

“Since demand from corporates is scarce I think some players will have to cut back on their dollar positions ... we’re likely to see a bit of selling in the interbank,” said Peter Mboowa, trader at KCB Uganda.

He predicted the shilling would oscillate between 2,520 and 2,560 over the next week though biased towards the stronger side.

Charities typically convert dollars at the end of the month for shillings to pay for salaries and meet other operational expenses.

TANZANIA

The Tanzanian shilling is expected to be stable to slightly stronger against the dollar next week, supported by U.S. currency inflows from corporates.

Commercial banks in east Africa’s second-biggest economy quoted the shilling at 1,632/1,642 to the dollar on Thursday, stronger than 1,639/1,644 a week ago.

“The shilling will likely remain range-bound at current levels next week ... Some corporate clients have been offloading dollars at the end of the quarter to meet tax obligations and pay salaries,” said Theopistar Mnale, a trader at Tanzania Investment Bank.

Market participants said they expect the shilling to trade in the 1,630-1,640 range over the coming days.

The central Bank of Tanzania said on its website that it traded $47.32 million on the interbank market over the past week.

GHANA

Ghana’s cedi could decline marginally next week on unmet dollar demand from local companies and moves by the central bank to correct its rates to reflect interbank price fluctuations, traders said.

The cedi, which has depreciated by around 12 percent since January, was quoted at 2.6700/2.6800 to the dollar by 1250 GMT on Thursday, down from the previous day’s close of 2.6550.

Ghana’s interbank market reopened active trading last week after more than six months of inactivity due to lack of liquidity.

“It’s easier now to see where actual rates are, so the central bank needed to react quickly to raise its numbers to the levels of the market,” Stanbic Bank Ghana’s Chris Nettey said. The cedi was expected to weaken “slightly” next week, he said.

He said the central bank has been selling dollars to commercial banks to boost the availability of dollars in the interbank market.

The government last week cancelled a planned five-year bond auction slated for this month to avoid a spike in already high yields. It earlier announced it had put a hold on a $1 billion Eurobond slated for this year.

Analyst Yaw Adu-Koranteng of the Accra-based NDK Asset Management firm said the cancellation of the five-year bond would starve the market of expected liquidity and lead to further weakening of the cedi to hit the 2.700 band.

ZAMBIA

The kwacha is expected to firm next week as businesses convert dollars into local currency in order to pay taxes and other month-end obligations.

At 1309 GMT on Thursday, commercial banks quoted the currency of one of Africa’s leading copper producers at 6.4100 per dollar, down from 6.2700 per dollar a week ago but traders said it was likely to recover.

“Provisional taxes are due at the end of the month which will result in conversions from foreign currencies to kwacha. This is expected to give support to the local unit,” First National Bank said in a market note.

Zambia last week revoked 2012 and 2013 regulations that required domestic transactions to be quoted and paid for in kwacha and gave the central bank authority to monitor foreign currency transactions. (Reporting by Duncan Miriri, Elias Biryabarema, Fumbuka Ng‘wanakilala, Oludare Mayowa, Kwasi Kpodo and Chris Mfula; Editing by James Macharia and Susan Fenton)

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