The Kenyan shilling edged down to a six-and-a half-year low against the dollar on Monday and traders expect it to ease further due to demand for the U.S. currency from oil importers.
At the 1300 GMT close of trade, banks posted the shilling at 82.45/55 to the dollar -- a level last seen on August 27, 2004 -- and down from Friday's close of 82.30/40.
We expect the shilling to weaken further against the dollar, as dollar demand from the oil sector and end-month corporate demand is still high, with very minimal inflows, said Samuel Nyamu, a trader at Equatorial Commercial Bank.
Oil prices climbed to $114 a barrel on Monday on the global market on the back of unrest in major oil producer Libya. This has caused panic among local oil importers who have moved to pile up stock on fears prices could rise further.
Traders said they expect the shilling to trade in the 82.20-83.00 range against the dollar.
With central bank continued buying, the shilling will edge down to 83.00 by end of this week, said Dickson Magecha, a senior trader at Standard Chartered Bank of Kenya.
Central Bank of Kenya stayed out of the foreign exchange market on Monday. Last week, it bought foreign currencies in three sessions and traders said this had weighed on the shilling.
The bank has in the past said it buys foreign exchange to boost its reserves and not to target shilling levels. The central bank said its official foreign exchange reserves climbed to $3.610 billion last week from $3.495 billion a week earlier.
Technical analysis charts show that the Kenyan shilling is in a long-term downtrend and has further to fall in coming weeks or months.
On the Nairobi Stock Exchange, the main NSE-20 Share Index, inched down 0.69 percent to close at 4,240.18 on reduced foreign and institutional investors participation, analysts said.
Foreign investors are selling Safaricom shares as they are cautious to invest in frontier markets following the geo-political risk that the violence in northern Africa has brought, said Gregory Waweru, an analyst at Kestrel Capital.
Telecoms operator Safaricom's share price was down 3.61 percent to 4.00 shillings a share on foreign investors selling.
Corporate and government bonds worth 1.52 billion shillings were traded on Monday, down from 2.24 billion on Friday.