NAIROBI, Nov 17 – East Africa’s shillings are all expected to strengthen against the dollar next week as tourism revenues start to climb with the onset of the year-end holiday season and Africans overseas send money home to relatives.
Kenya’s shilling is seen firming next week beyond Thursday’s 11-week high due to an acute liquidity crunch and year-end dollar flows into tourism and agriculture, and from aid groups and Kenyans abroad sending money home for the holiday season.
Commercial banks quoted the shilling at 92.50/70 against the dollar, a level last touched on Aug. 29 and more than 2 percent stronger than last Thursday’s close of 94.80/95.00.
“We’re headed to 90 shillings per dollar,” said a trader with one commercial bank. “Guys cannot hold long dollar positions in this tight market.
“Reduced importers’ demand coupled with increased inflows from tourism, tea and the diaspora will also support the shilling as the year comes to a close.”
Charts showed dollar support at 92. If it breached that, the psychologically key 90 level would come into play, the trader said.
The shilling slid through 90 on July 26, battered by a crisis of confidence in policymakers, rampant inflation and speculative trading.
Aggressive monetary tightening in the second half of the year stopped the rot and squeezed liquidity out of the money market.
The central bank is set to hold its next Monetary Policy Committee meeting on Dec. 2. Traders say more support measures may be revealed.
“Many market players are still playing the cautious card following interest rate hikes by the central bank,” Commercial Bank of Africa in a daily report.
The Ugandan shilling is expected to hold steady against the dollar due to low corporate demand for the greenback.
At 1050 GMT, commercial banks quoted the shilling at 2,580/2,591 compared with last Thursday’s close of 2600/2,610.
“We don’t expect any big movements because corporate demand is weak because of the slowdown in consumer demand,” said Dickson Musoni, treasury manager at Kenya Commercial Bank Uganda.
Traders said the shilling was expected to meet resistance at 2,585 to the dollar, and find support at 2,620.
“The shilling has failed to break significantly below 2,590 over the last few days and we’ll likely trade around the same level in the next week unless corporate demand improves,” said Faisal Bukenya, head of market making at Barclays Bank Uganda.
The shilling is off an all-time low of low of 2,901 hit on Sep. 23, but is still 9.4 percent weaker against the dollar so far this year.
Source: Reuters Africa newsletter
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