Naira activity subdued post-Eid; Importer obligations weigh on Kenyan shilling

Naira activity subdued post-Eid

With minimal activity after the two-day Eid holiday, the Naira appreciated slightly to 473 per dollar in the parallel market at the beginning of the week before slipping back to 474. A shortage of dollars persists given recent weeks of lower revenue from oil, Nigeria’s biggest foreign exchange earner. Demand has been balanced by CBN reserves currently at $36 billion, available in case of a sudden surge in demand for the greenback. Dollar scarcity will continue to put pressure on the currency.

Rand takes hit from rising COVID cases

The Rand lost ground against the dollar this week, hitting the weakest level since early July at 17.50, amid fears of worsening fallout from the coronavirus after South Africa recorded over half a million confirmed cases. The currency picked up since, reaching 17.30 levels, as global risk appetite improved ahead of rare trade talks between China and the US, and agreement on the latest US coronavirus relief package. We foresee sustained pressure in the coming days.

Importer obligations weigh on Kenyan shilling

The Kenyan shilling depreciated slightly to 108 levels from 107.75, driven by demand for dollars from importers and oil companies to meet outstanding obligations. Last week the Monetary Policy Committee held the Central Bank Rate at 7%, saying the package of policy measures implemented since March were having the intended effect on the economy. While the shilling has lost 6.3% against the dollar so far this year, usable forex reserves are adequate to cover short-term shocks and volatility in the exchange rate, according to the governor. The Central Bank of Kenya closed a tap sale of Ksh 41 billion ($380million) on a fixed coupon Treasury bond on Aug. 4 for budgetary support. We foresee a slight weakening of the shilling due to continued dollar demand from importers.

Treasury auction inflows support Ugandan shilling

The Ugandan shilling improved slightly to 3688 (3,683/3,693) from 3690.77 levels last week, driven by inflows from offshore investors participating in a recent Treasury auction. Inflows from commodity exporters also supported the currency, while minimal dollar demand from the manufacturing and energy sectors during the first week of the month eased pressure on the shilling. We foresee minimal movement in the coming days.

Trickle down from energy demand weakens Tanzanian Shilling

The Tanzanian shilling weakened slightly to 2320.69/2330.69 (2325.69) from 2315.39/2339.59 (2324.09). Pressure on the currency is a trickle-down from an end-of-month pick up in dollar demand from importers, especially in the energy sector during the Eid holiday. Increased demand from importers in energy and manufacturing sectors is likely to persist while Tanzania’s presidential elections in October increases the risk of capital flight from foreign investors, sustaining pressure on the local currency.

Authors

  • Murega Mungai is the Trading Desk Manager at AZA, based out of the Nairobi office. His work revolves around FX trading and market analysis of emerging and frontier markets, particularly in Africa.

  • Terry Karanja is a Treasury Associate at AZA. She is actively involved in conducting market research to analyze current trends in the global economy and their effects on currencies, with a strong focus on Africa.

About The Author

Murega Mungai

Murega Mungai

Murega Mungai is the Trading Desk Manager at AZA, based out of the Nairobi office. His work revolves around FX trading and market analysis of emerging and frontier markets, particularly in Africa.