WEEKAHEAD-AFRICA-FX-African currencies on the ropes, more central bank interventions eyed

Nigeria’s naira is expected to lose more ground next week, hit by the slide in crude prices and a decline in dollar liquidity, while other African currencies are likely to remain on the back foot unless their respective central banks intervene.

The Nigerian naira could face more volatility next week amid tight dollar liquidity in spite of sustained central bank intervention in the market, and an upward revision of commercial banks’ foreign currency position limits to 0.5 percent from 0.1 percent previously.
The naira was trading around 189.90 to the dollar on the interbank market, down from 185.6 a week ago.
“The situation in the market remains dicey because of insignificant dollar flows from independent sources other than the regular intervention by the central bank,” one dealer said.
“What the market needs is a large flow of dollars to offset pent-up demand built up in the market.”
Traders expected month-end dollar flows from some oil companies next week to provide a boost, but said they would have to be large enough to reduce pressure on the naira.
Most oil companies in Africa’s top crude exporters sell dollars every month to obtain local currency for their domestic obligations.

Kenya’s shilling is expected to weaken in the next week, hurt by increased importer dollar demand against scant inflows.
At 1133 GMT, commercial banks quoted the shilling at 91.70/80 to the dollar, compared with last Thursday’s close of 91.45/55. The shilling touched a new three-year low of 91.80/90 to the dollar during Thursday’s session.
Earlier in the week traders said the central bank sold an unspecified amount of dollars to help the shilling, but that the local unit was likely to weaken past 92.00 without more support.
“Demand (for dollars) is still building up, especially now that we are approaching end-month. But I am also looking at the supply side which is quite mute at the moment,” Robert Gatobu, a trader at Commercial Bank of Africa, said.
Traders forecast the shilling, which has lost 1.1 percent against the dollar so far this month, would trade in the 91.50-92.00 range in coming days.
Technical analysis of the 14-day and 50-day weighted moving averages showed the shilling was expected to maintain a weakening trend in the near term.

The shilling is forecast to strengthen in the next week after a series of central bank interventions to try and stem demand pressure.
Commercial banks quoted the shilling at 2,860/2,870, stronger than last Thursday’s close of 2,890/2,900.
The shilling is down 3.1 percent against the dollar this month due to demand from commercial banks and importers.
The central bank has sold dollars five times so far this month to try and cushion the shilling, which traded just shy of its softest level of 2,910/2,920 reached on Sept. 23, 2011.
“After the central bank’s decisive action I think we’ll see a lot of unwinding of the long positions,” said Shahzad Kamaluddin, trader at Crane Bank.
The local currency will likely trade in the 2,875-2,900 range, Kamaluddin added.
The shilling is expected to extend losses, hit by demand from energy and manufacturing sectors and subdued inflows of the U.S. currency after touching a five-year low on Thursday.
Commercial banks quoted the shilling at 1,835/1,845 to the dollar, weaker than 1,770/1,780 a week ago.
“The weakening of the shilling will likely continue next week because demand is still high and inflows are not expected anytime soon,” said Moses Kawiche, a trader at CRDB Bank.
“There is substantial demand for dollars particularly coming from the energy sector, oil importers and manufacturers.”
Market participants expected the shilling to trade in the 1,840-1,850 range over the coming days.
The Bank of Tanzania said on its website it had traded $30.3 million on the interbank foreign exchange market over the past week.

Ghana’s cedi is expected to remain under pressure in coming weeks due to a persistent lack of dollar inflows amid seasonal high demand from local importers, analysts said.
The local currency has declined about two percent against the dollar so far this year, and traded at 3.2900 to the greenback by 1300 GMT on Thursday compared to 3.2185 on Jan. 2.
“We see GHS near-term bearish outlook intact in the coming sessions,” Barclays Bank Ghana trader Michael Akpakli said.
Ghana, which exports cocoa, gold and oil, is currently in talks with the International Monetary Fund for an assistance package to fix its economy and support the cedi, which slumped 32 percent last year.

Traders expected the kwacha to take its direction from how the country handles the outcome of the Jan. 20 presidential election.
At 1200 GMT on Thursday, commercial banks quoted the currency of Africa’s second-largest copper producer at 6.4350 from 6.5400 a week ago.
This was the kwacha’s second daily gain as Tuesday’s peaceful vote eased investor jitters about stability in Africa’s second biggest copper producer.
“We anticipate that the local unit will remain in limbo in the time being and direction will be derived from domestic events,” Banc ABC said in a market note.
Zambia’s ruling party presidential candidate Edgar Lungu took a slim lead over his rival Hakainde Hichilema after votes from half of the constituencies were counted, the electoral commission said on Thursday. (Reporting by Oludare Mayowa, George Obulutsa, Elias Biryabarema, Fumbuka Ng’wanakilala, Kwasi Kpodo and Chris Mfula; Editing by James Macharia)

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