Kenyan and Zambian currencies stable, Nigeria's could weaken

Traders anticipate that the currencies of Kenya, Uganda, Ghana, and Zambia will remain largely stable over the coming week, while Nigeria’s currency, the naira, is projected to weaken due to increased demand for foreign currency.

KENYA

Kenya’s shilling has exhibited a notable trend of stability, and this is expected to continue through the coming week. The local currency has traded within a narrow range for about a month, showing little fluctuation. According to data from the London Stock Exchange Group (LSEG), the shilling was quoted at 128.50/129.50 per dollar, which is close to last Thursday's close of 128.25/129.25.

One trader mentioned, “We’re stuck within this range. The shilling has reached a stable zone.”

Earlier this year, the Kenyan shilling saw significant strengthening, bolstered by reduced fears that Kenya might default on a $2 billion Eurobond that matured in June. However, after experiencing gains in the first quarter, the currency began to lose momentum starting in April. This period of relative calm now seems set to continue as traders maintain their expectations of limited volatility.

Factors influencing the Kenyan shilling’s performance include Kenya’s economic policies and central bank interventions, along with international trade flows. Inflationary pressures and any shifts in global commodity prices, particularly oil, could influence future movements. For now, however, the outlook remains steady.

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NIGERIA

Nigeria’s naira, on the other hand, is anticipated to lose ground against the dollar, despite efforts by the government to boost foreign-currency reserves. The Central Bank of Nigeria recently raised $900 million from a domestic dollar bond sale, but traders suggest this alone will not be enough to stave off further depreciation.

On Thursday, LSEG data indicated the naira traded at 1,650 to the dollar on both official and street markets, compared to 1,592 naira a week earlier. The pressure on the currency is attributed to rising demand for foreign currency, which is outstripping supply.

“The dollar raise in itself does not translate to an appreciation, until the central bank puts out those dollars to the market,” noted one trader. The trader also added that while the central bank's interventions can provide short-term relief, they have so far been insufficient to meet market demands.

The naira has been under sustained pressure in recent years due to a combination of factors, including falling oil revenues, limited foreign direct investment, and domestic inflation. Nigeria, being heavily reliant on oil exports for foreign exchange, has faced challenges in maintaining the stability of its currency, especially during periods of declining global oil prices.

GHANA

Ghana’s cedi is expected to trade steadily, thanks to weak demand for foreign currency and ongoing support from the central bank. LSEG data showed the cedi at 15.65 to the dollar, slightly above the previous week’s level of 15.62.

Sedem Dornoo, a senior trader at Absa Bank Ghana, remarked, “The cedi traded relatively stable against the dollar in the past week, with very little interbank activity. Corporate demand has also decreased in the last few sessions.” Dornoo added that this trend is likely to persist in the coming week. Another trader suggested that central bank interventions will likely anchor the exchange rate in the near term.

Ghana has been facing economic challenges, exacerbated by high inflation and a growing public debt. However, with continued central bank interventions and decreased corporate demand for foreign currency, the cedi appears to be in a phase of relative calm.

UGANDA

Uganda’s shilling is projected to trade within a tight range over the next few days, underpinned by subdued demand for U.S. dollars. This is partly because most firms are conserving their local currency for mid-month tax obligations.

On Thursday, commercial banks quoted the Ugandan shilling at 3,715/3,725 to the dollar, similar to the previous week’s close of 3,716/3,726. Traders note that the reduced dollar demand is a key factor in stabilizing the local currency.

Uganda’s economy has shown resilience in the face of global economic shocks, but its currency remains vulnerable to fluctuations in demand for foreign currency. The central bank has played a crucial role in maintaining stability, and its policies continue to provide a buffer against excessive volatility.

ZAMBIA

The Zambian kwacha, much like the Kenyan and Ugandan currencies, is also expected to remain stable in the coming days. The stability of the Zambian currency has been supported by relatively balanced supply and demand conditions in the local foreign exchange market.

However, Zambia's broader economic picture includes challenges such as high public debt and inflationary pressures. The government has been engaging with international financial institutions to stabilize its economy, and these efforts have contributed to the relative stability of the kwacha.

This broad view of currency movements in Africa highlights the varied factors impacting each nation's economy. While Kenya, Uganda, Ghana, and Zambia are expected to maintain stability in the short term, Nigeria faces heightened uncertainty due to currency demand and ongoing macroeconomic challenges. Central bank interventions will continue to be crucial in determining the path forward for these currencies.