Uganda's shilling looks set to plumb new record lows against the dollar over the next week due to soaring foreign exchange demand from the oil sector, while Kenya's unit should strengthen slightly.
Uganda's shilling UGX= continued its five-month slide to hit a life-time low of 2,347 to the dollar on Thursday due to strong foreign exchange demand from the country's nascent oil sector.
The depreciation was likely to accelerate, possibly hitting 2,400 by the end of the month -- barring central bank intervention -- due to a fundamental shortage of dollars in the country, traders said.
Demand is still high and it's going to jump even higher as the month moves towards the end because corporates will be stocking up on dollars to meet their usual end-of-month financial obligations, said Faisal Bukenya, head of market making at Barclays Bank Uganda.
There's a real possibility of hitting 2,400.
Others said the central bank would be forced to intervene.
As long as demand keeps up, the depreciation trend for the shilling will continue. But the levels we're at now are certainly unprecedented and we strongly expect the central bank to come any time to calm the market, said Lucas Ochieng, a trader at Orient Bank.
Charts showed the currency much lower than its 20-, 50- and 200-day moving exponential moving averages, suggesting it is locked in a short-, medium- and long-term weakening trend.
The shilling lost more than 20 percent against the dollar in 2010, hitting a record low of 2,337 on the final day of the year, despite external investor interest in its relatively high-yielding domestic debt.
A presidential election is due on Feb 18, and even though President Yoweri Museveni is expected to win a fourth term, there are concerns about elevated state spending.
The Kenyan shilling KES= is likely to firm against the dollar, buoyed by the central bank's absence from the market and a firm supply of dollars from farm exports.
Traders said the shilling was likely to stay in a range of 80.60-81.10 with a firming bias. It was at 80.85 on Thursday, up from last week's 81.1 close.
The Central Bank of Kenya (CBK) has not bought any hard currency this year, suggesting it has happy for the unit to strengthen from a 3-1/2-month low of 81.25 touched last week.
CBK being absent from the market is a positive for the shilling, said a senior treasury manager at Citi.
Frequent central bank foreign exchange purchases kept the shilling under pressure for most of last year, frustrating traders who said it boxed the unit in a tight range, limiting trading opportunities CBK04.
Sameer Lagadia, head of trading at Diamond Trust Bank, said the shilling could also benefit from higher dollar flows from tea and coffee exporters.
Despite this, the unit is still weaker than its 50- and 200-day exponential moving averages, suggesting it is in a medium- and long-term easing trend.
Tanzania's shilling TZS= lost ground against the dollar on Thursday due to strong oil sector and interbank demand for dollars and traders forecast more weakness in coming days.
The unit was at 1,485 to the dollar compared with 1,469 a week ago.
Traders said they expected a range of 1,480-1,490 range next week as the central bank stepped in to stabilise dollar demand, most notably from the energy sector.
There is a shortage of dollars in the market. Demand is there, but there are no inflows coming in, said Commercial Bank of Africa trader Hakim Sheikh.
I think the shilling could well go to the 1,500 level if this trend continues.
Seasonal trends in dollar flows suggest further weakness.
We usually don't see a lot of (dollar) inflows during the months of January, February and March so the shilling will likely continue to weaken, said Theopistar Mnale, a trader at Tanzania Investment Bank.
Between last Thursday and Monday, the central bank traded $33.5 million on its Interbank Foreign Exchange Market, according to statistics on its website.
The shilling fell nearly 10 percent against the dollar last year, hitting a lifetime low of 1,527 in May.
The naira NGN= remained weak against the dollar at both the interbank market and official window on Thursday due to short supply of the greenback and traders said it was likely to continue to depreciate.
It eased to 153.60 to the dollar in early trade at the interbank market on Thursday from 153.20 on Wednesday due to tight dollar supply.
State-run energy firm NNPC sold about $200 million to some lenders in the week, but it was not sufficient to reduce the appetite for dollars.
Traders said the naira remained under pressure because the central bank had failed to meet full demand at its bi-weekly auctions.
We expect that the naira will weaken next week, unless the central bank increases dollar supply at its next auction on Monday and energy majors sell large amounts of dollars at the interbank, one dealer said.
The kwacha ZMK= is expected to firm due to rising demand for the local unit as foreign companies convert to the currency of Africa's largest copper producer to pay corporate taxes due on Friday.
The kwacha was at 4,715 to the dollar on Thursday versus 4,730 a week ago.
We are expecting a strong kwacha trading around 4,690 to the dollar next week mainly on account of higher demand for the kwacha to pay taxes, one trader said.
The unit met firm resistance around 4,600 during 2010. On the few occasions it broached that level, it tested but failed to breach 4,550.
Expectations of a 3-year government bond issue, open to foreigners, should support the cedi GHS= in a 1.48-49 range against the dollar, despite letters of credit falling due in the first quarter exerting mild pressure on the unit, traders said.
During the festive season a lot of companies signed letters of credit so we have a situation whereby supply and demand pressure put the cedi on the downside. We are going to see mild depreciation pressures again next week, said Databank analyst Sampson Akligoh.
In anticipation of the bond issuance, dollar supply will be thin against strong corporate demand, said Joyce Bekoe from Barclays Ghana.
This week there will be no off-shore inflows. They are waiting for the three-year bond to be issued and then they will bring in funds, but so far we haven't heard any news about it so it's calm, she said.