More pain in sight for E.Africa shillings

NAIROBI, June 23 – The Kenyan and Ugandan shillings are likely to remain under pressure against the dollar next week after falling through a series of record lows that their central banks blamed on currency speculators.

Kenya’s shilling, which has hit a string of record lows in the last two weeks, is likely to remain volatile against the dollar, due to importer demand for the greenback and tight domestic liquidity, traders say.
At 0959 GMT, commercial banks quoted the shilling at 90.00/30, weaker than last Thursday’s close of 89.90/90.00.

It fell to an all-time low of 91.90 on Wednesday, taking year-to-date losses to more than 13 percent, but recovered after the central bank said it was going to take action against currency speculation. “There is no real focus on the shilling following what has happened in the last few weeks. Factors affecting it can change at very short notice,” said Chris Rwengo, head of trading at Standard Chartered Bank. “Liquidity is still squeezed and quoting spreads are still wide.”

Traders say the shilling could fall to 92.00 due to oil and grain importers buying dollars to meet month-end demand.

Kenya is also facing a maize deficit that saw Finance Minister Uhuru Kenyatta zero rate imports for six months in the budget for 2011/12 to shore up reserves.

“We believe that the USD/KES pair is still in muddied waters and may see wild moves within the 90.00 – 92.00 band before charting a way forward in the short term,” Commercial Bank of Africa said in a note.
Technical analysis of the 14-day and 50-day simple moving averages show the shilling in a short term weakening trend.


Uganda’s shilling will remain under pressure after a week in which it hit two all-time lows before stabilising on the back of central bank intervention.

The unit hit 2,508 to the dollar on Tuesday, prompting the central bank to sell dollars in support of the currency.

It is not yet clear how much the bank sold.

“We expect more pressure on the shilling because the manufacturing and oil sectors are still looking for dollars,” Faisal Bukenya, head of market making at Barclays Bank Uganda, said.

Traders in Kampala predicted the currency in a 2,480-2,495 range against the dollar. It has fallen more than 7 percent against the dollar this year.

The central bank says the currency is undervalued and often blames speculators when it depreciates. Its interventions are aimed at bringing the shilling to between 2,460 and 2,470, traders said.

The Ugandan market is closely watching neighbouring Kenya, its biggest trading partner and the source of most of its currency inflows, for fallout from its own currency crisis.

Technical analysis of the 14-day and 50-day simple moving averages show the shilling in a short-term weakening trend.


Source: Reuters Africa newsletter

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