Importers in Kenya, Tanzania and Uganda are seen putting pressure on their currencies next week, while moves in the Nigerian naira may be limited as the central bank steps in to prop up the struggling currency.
The Nigerian naira is expected to trade within a range next week, propped up by further support from the central bank against dollar demand from importers and companies worried about the risk of a devaluation.
The currency’s weakness has been driven by strong demand for dollars amid a shortage and continued concerns over weak oil prices in Africa’s leading producer, which relies on oil as its main source of foreign currency earnings.
The naira was trading around 165.74 to the dollar at 1330 GMT, weaker than 164.75 last Thursday.
“The central bank has showed a bit of resolve to support the naira, so the naira is not seen depreciating rapidly as seen in the last couple of days,” one dealer said.
The central bank in Africa’s biggest economy intervened with an undisclosed amount of dollar sales to support the naira on Wednesday, with the currency hovering around a 7-month intraday low of 166 naira.
Ghana’s cedi is expected to remain stable at about 3.21 to the dollar in the coming week, buoyed by inflows from a record cocoa loan and a Eurobond, traders said.
The cedi has fallen 35.32 percent this year, according to Thomson Reuters data. It hit a low of 3.89 to the dollar on Aug 28 before rebounding. It traded at 3.18-3.28 at 1200 GMT.
The West African producer of cocoa, gold and oil sold a $1 billion Eurobond last month at a coupon rate of 8.125 percent, that was oversubscribed with orders of up to $3 billion.
The currency has also been helped by expectations that the government will do a deal with the International Monetary Fund on a financial assistance programme aimed at restoring fiscal balance to the economy.
“The stability has been there because of the Eurobond supplies and proceeds to Cocobod,” said Adu-Koranteng Yaw, research analyst at NDK Asset Management in Accra.
“I’m expecting it to be fairly stable to Christmas.”
The Kenyan shilling is expected to come under pressure from importers buying dollars to pay their monthly dues and from unsuccessful offshore bidders for an infrastructure bond auctioned on Wednesday seeking dollars.
The currency of East Africa’s biggest economy closed at 89.30/89.50 to the dollar, weaker than 88.90/89.00 a week ago.
The government had offered 15 billion shillings ($168 million) for the bond, and received bids worth 39 billion shillings in the oversubscribed sale, Nahashon Mungai, a trader at Kenya Commercial Bank, said.
“If you had sold dollars in anticipation that you are going to get your [infrastructure bond] and then you don’t get it, then you simply convert your shillings back to dollars, pushing the shilling back to the back foot,” said Mungai.
“So everything looks bearish for the shilling at the moment,” Mungai said, noting the local currency could trade as low as 89.50 to the dollar next week.
The Tanzanian shilling is expected to remain under pressure next week, undermined by an increase in demand for dollars from importers and low supply of hard currency.
Commercial banks quoted the shilling at 1,708/1,715 to the dollar, weaker than 1,691/1,696 a week ago.
“The shilling has been trading in 1,700 levels since the start of this week due to increased demand for the U.S. currency, and this trend is expected to continue next week,” said Flora Mrema, a trader at TIB Development Bank.
“The demand for dollars in the market currently outweighs the available supply, and this is why the shilling has been under pressure.”
Market participants expected the shilling to trade in a 1,700-1,710 range over the coming days.
The Bank of Tanzania said on its website it had traded a total of $37.4 million on the foreign exchange market this week.
The Ugandan shilling is expected to lose ground next week, sapped by strong demand from importers and banks.
At 1007 GMT commercial banks quoted the shilling at 2,700/2,710, weaker than last Thursday’s close of 2,675/2,685.
“We expect the appetite from manufacturing firms that the market has been witnessing to remain strong in the short-term. Overall the shilling will continue losing ground from pressure exerted by these manufacturers,” said Isaac Iga, chief dealer at Orient Bank.
After days of bearish pressure, the local currency this week crossed the 2,700 level against the dollar and is now 6.7 percent weaker against the greenback so far this year.
Traders anticipate more losses ahead of the December holiday shopping season as importers ship in merchandise for buyers.
The kwacha is expected to remain under pressure next week due to limited dollar supply despite some inflows from companies converting dollars to meet month end obligations.
At 1227 GMT, commercial banks quoted the currency of Africa’s second largest copper producer at 6.3500 per dollar versus 6.3400 one week ago.
“In the absence of healthy dollar inflows, this trend is likely to continue into next week,” one commercial bank trader said.
The kwacha has been on the back foot this week as concerns about weak global growth and the spread of the Ebola virus weigh on investor appetite for emerging markets.