(Reuters) Oct 29 Tanzania’s shilling is expected to strengthen against the dollar next week after its elections passed off relatively peacefully, while the Zambian kwacha is likely to remain under pressure, driven down by tight dollar liquidity.
TANZANIAThe shilling is expected to strengthen against the dollar after a largely peaceful general election and a slowdown in demand from importers.
Commercial banks quoted the shilling at 2,165/2,175 to the dollar on Thursday, stronger than 2,180/2,190 a week ago.
“The market has been mostly stagnant … there is no activity happening, with several shops and offices closed as people are waiting for things to resume post-election,” said Sameer Remtulla, a dealer at Commercial Bank of Africa Tanzania.
The east African nation held presidential, parliamentary and local council elections on Oct. 25.
The kwacha is likely to remain under pressure next week, driven down by tight dollar liquidity due to reduced demand for copper, Zambia’s main export.
At 1150 GMT on Thursday, commercial banks quoted the currency of Africa’s No.2 copper producer at 12.55 from 12.150 at which it closed a week ago.
“Demand for forward foreign exchange contracts continues to increase among mostclients as they try to hedge future transactions and lock in profit margins,” BancABC said in a note.
The shilling is expected to be steady due to mild dollar demand from corporate clients.
Commercial banks quoted the shilling at 3,570/3,580, stronger than last Thursday’s close of 3,605/3,615.
“A bit of demand is coming from corporate clients but it’s all weak and scattered,” said David Bagambe, trader at Diamond Trust Bank. “I see the local unit trading around a stable range of 3,525-3,575.”
The shilling is seen strengthening in the next week, helped by high yields on government Treasury bills that have attracted dollars from foreign investors, traders said.
Commercial banks quoted the shilling at 101.80/101.90 to the dollar, compared with last Thursday’s close of 102.10/30.
“It’s still above 20 percent. If the government securities rates remain up here, we will continue attracting offshore dollar inflows,” said a senior trader at one commercial bank.
The naira is expected to hold steady against the dollar on both the interbank and parallel markets as the central bank continues to insist the local currency is “appropriately priced” at the present level.
The local currency was trading at 225 to the dollar on the parallel market, the same level it closed at last week, while in interbank trade the naira was at 198.97 to the dollar, compared with 197 a dollar the previous week.
The central bank has resorted to adjusting the rate on the local currency since pegging it to the dollar in February and abolishing two-way naira quotes to help conserve forex reserves.
Traders said the present method of exchange rate fixing has led to an erosion of the country’s forex reserves, which stood at $30.13 billion as of Oct. 27, down from $30.38 billion a month earlier.
The cedi is likely to remain stable in the coming week as individual and corporate demand for dollars is matched by supply, traders said.
The cedi rebounded in July after slumping nearly 30 percent in the first half of the year and was trading at 3.8000 at 1100 GMT on Thursday, according to Thomson Reuters data.
“The issue of debt securities over the past weeks has not noticeably strengthened the cedi, but has however kept it from large depreciations resulting from last quarter trades,” said Joseph Amponsah of Dortis Research in Accra.
The government launched a Eurobond with a 10.75 percent coupon rate this month and signed a $1.8 billion loan deal in Paris in September for 2015/16 crop purchases. Both these factors should support the currency in the months ahead. (Reporting by Fumbuka Ng’wanakilala, Chris Mfula, Elias Biryabarema, George Obulutsa, Oludare Mayowa and Matthew Mpoke Bigg; Compiled by Nqobile Dludla; Editing by Hugh Lawson)