February 5, 2015 / 3:00 PM / 3 years ago

WEEKAHEAD-AFRICA-FX-African currencies seen under pressure

LAGOS, Feb 5 (Reuters) - Nigeria’s naira is expected to remain volatile next week hit by the slide in crude prices after touching a new record low on Thursday, while other currencies are also seen on the back foot due to rising dollar demand from local importers.

NIGERIA

The naira recovered from its record low after the central bank sold dollars to prop up the local currency, dealers said, and more central bank interventions are expected next week.

The central bank has been intervening almost daily in the interbank market since the start of the year. The naira has suffered as falling oil prices weaken Nigeria’s economy, causing foreign investment to dwindle.

The naira hit a record low of 194.65 to the dollar on Thursday and closed at 192.70 from 188.90 a week ago.

Month-end dollar sales by oil companies to meet their local obligations have not been sufficient in supporting the naira.

“Demand for the dollar remains strong in the market and we need consistent large dollar flows to reduce pent up demand in the market,” one dealer said.

The local currency has stayed well below a trading band of 160 to 176 to the dollar, set after the central bank devalued the naira by 8 percent in November.

KENYA

The Kenyan shilling could come under pressure next week as liquidity improves in the money markets amid a reduction in the government’s weekly borrowing from the local market.

The shilling closed at 91.25/35 on Thursday, up from 91.60/70 last week, driven by heavy hard currency flows.

“The liquidity will have improved. We might see the shilling under pressure,” said a trader with a commercial bank.

The trader said overnight average interest rates could fall further after the government cut its weekly borrowing target in the local market by a third to 8 billion shillings ($87.62 million). Kenya has cut this financial year’s local borrowing target by close to a quarter.

UGANDA

The Ugandan shilling is forecast to trade in a range next week, but may weaken thereafter as foreign-owned corporates seek dollars to pay their dividends.

At 1024 GMT commercial banks quoted the shilling at 2,855/2,865, stronger than last Thursday’s close of 2,860/2,870.

“Toward the end of February going into March dividend payments might push demand up and trigger some depreciation,” said Faisal Bukenya, head of market making at Barclays Bank.

The local currency is now 3 percent weaker to the dollar so far this year. Bukenya said the shilling would trade in the 2,850-2,875 range next week.

TANZANIA

The Tanzanian shilling is seen under pressure against the U.S. dollar in the days ahead, weighed down by demand for greenbacks from importers and a slowdown in inflows.

Commercial banks quoted the shilling at 1,830/1,840 to the dollar on Thursday, weaker than 1,782/1,792 a week ago.

Market participants expected the shilling to trade in the 1,840-1,850 range over the coming days.

The Bank of Tanzania said it had traded $86 million on the interbank foreign exchange market in the past week.

GHANA

Ghana’s cedi could hit a fresh year-low against the dollar next week as demand for the greenback by local importers surges amid scanty hard currency inflows.

The local currency traded weaker on Thursday at 3.4700 to the dollar on Thursday compared with 3.3300 a week ago.

“(Dollar) supply has waned significantly while demand remains firm,” Barclays Bank Ghana analyst Michael Akpakli said. He forecast the cedi could decline further to 3.5000 next week.

The central bank said last week it was ready to intervene “vigorously” this year to ensure a much more stability for the cedi, which slumped 31 percent in 2014.

ZAMBIA

The kwacha is likely to be under pressure on light dollar inflows into Africa’s second-largest copper producer as copper earnings dwindle.

Commercial banks quoted the kwacha weaker at 6.5500 per dollar on Thursday from a close of 6.4900 a week ago.

“The low copper prices could present a challenge to the kwacha,” one commercial bank trader said.

The central bank was expected to intervene should the currency weaken below 6.6000 to the dollar, while support was seen at 6.5000, the trader said.

Kwacha weakness may be limited by investor interest in a Treasury bill auction later on Thursday, and as mining companies and other investors convert hard currency to kwacha to pay Value Added Tax (VAT) due by mid-month, the trader said.

$1 = 91.3000 Kenyan shillings Reporting by Oludare Mayowa, Duncan Miriri, Elias Biryabarema, Fumbuka Ng'wanakilala, Kwasi Kpodo and Chris Mfula; Editing by James Macharia

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