African currencies under pressure ahead of likely U.S. rate hike

The Ugandan shilling could weaken on dollar demand by firms seeking to pay local taxes, while the Zambian kwacha could wilt on reduced copper export earnings, traders said.

Most African currencies are likely to take a hit on the expected U.S. Federal Reserve rate hike.

UGANDA

The shilling is expected to trade with a slightly weaker bias on an uptick in corporate dollar demand.

At 1101 GMT commercial banks quoted the shilling at 3,340/3,350, weaker than last Thursday’s close of 3,315/3,325.

“Firms are stocking up dollars to clear whatever payment obligations remain for the year … dividend payments are also around the corner,” said a trader at a leading commercial bank.

“Added to fears over the Fed decision I would say the tone for the shilling will be of mild depreciation.”

ZAMBIA

The kwacha will likely remain under pressure due to a limited supply of dollars in Africa’s second largest copper producer, whose major export has been hit by a slowdown in demand from China, the commodity’s top consumer.

At 0730 GMT on Thursday, commercial banks quoted the currency at 10.8200 per dollar from 10.6277 a week ago.

“Dollar supply is very limited and this will continue putting pressure on the kwacha,” analyst Maambo Hamaundu said.

TANZANIA

The shilling is seen strengthening slightly, helped by a slowdown in demand for the U.S. currency as well as dollar sales to meet local tax obligations.

Commercial banks quoted the shilling at 2,153/2,163 to the dollar on Thursday, stronger than 2,160/2,170 a week ago.

“The outlook is that the shilling will likely appreciate to 2,150-2,160 levels next week. A lot of customers are selling dollars to cover their positions and pay taxes in shillings before the year ends,” said Hakim Sheikh, a dealer at Commercial Bank of Africa Tanzania.

KENYA

The shilling is expected to stay close to 102 per dollar next week, with inflows of foreign exchange likely to match corporate dollar demand.

The shilling has traded in a range of roughly 102.00 to 102.50 since early November, but strengthened in recent days to below 102.00. By 1248 GMT on Thursday, it was at 101.65/75.

One trader said he expected the shilling to stay in a range of about 101.50 to 102.00 next week, while another suggested a range of about 101.80 to 101.30.

Dealers said the central bank could issue a tap on a nine-year, government infrastructure bond after the initial auction on Dec. 9 received bids worth just 55 percent of the value offered. The poor subscription level suggested lower offshore interest, but the tap could boost dollar inflows, they said.

GHANA

Ghana’s cedi could come under renewed pressure as dollar demand by businesses picked up amid scanty supply from the central bank greenback sales and offshore sources.

The local currency has been steady in the fourth quarter after slumping nearly 30 percent in the first half of the year. It was trading at 3.83 to the greenback at 1100 GMT on Thursday, slightly down from 3.81 a week ago.

“Individuals especially, and some firms would be tempted to buy and hold dollars to guard against exchange rate uncertainty early next year,” said analyst Joseph Biggles Amponsah of the Accra-based Dortis Research.

Barclays Bank Ghana said in its market report on Thursday that the cedi could trade within the 3.8300-3.8400 range to the dollar in the coming weeks.

NIGERIA

The naira should trade within the present range as businesses wind down for the year and Nigerians living abroad return home for holidays bearing dollars.

The naira weakened further in the parallel market on Thursday, trading at 253 to the dollar versus 246 last week. The currency traded at 198.97 to the dollar on the interbank market, near a rate at which it has been pegged since February.

The local currency had weakened on the unofficial market on Wednesday on reduced dollar supply to the foreign exchange bureau operators due to lack of the relevant documentation.

“We are in contact with the central bank to resolve issues around the exclusion of some of our members from the forex sales and we are expecting positive response,” said Aminu Gwadabe, president of Nigeria’s bureau de change association.