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Naira to face more pressure next week

By on September 20, 2014

The naira is seen under pressure next week after oil prices continued to decline and offshore investors sold down their local debt holdings, Reuters reported.

The local currency traded at N163.90 to the dollar, compared with Wednesday’s close of N163.45 due to strong demand from importers and other foreign exchange end users. The naira closed at N162.90 to the dollar last Thursday.

“We have seen strong buying interest from some offshore investors in the last couple of days, while the market is actually jittery on the continued drop in the oil price in the international market,” one dealer said.

According to Reuters, oil traded slightly lower below $99 a barrel on Thursday, pressured by ample supply.

The naira crossed the N163 to the dollar level on Wednesday despite intervention by the central bank. The bank has been selling undisclosed amounts of dollars directly to lenders this week to try to stabilise the naira, which has declined by about 3.5 per cent this year.

Dealers said the ability of the central bank to continue to support the local currency would depend on the oil price and monetary policy measures to stem the drift.

The central bank’s monetary policy committee is due to meet this Friday to set key interest rate.

The Kenyan shilling is expected to remain under pressure next week due to increased dollar demand and slowing inflows, despite central bank efforts to keep its slide in check.

During the week, the currency of East Africa’s biggest economy weakened to touch a near three-year low of 89.45/89.55 to the dollar, levels at which it last traded in mid-December 2011, according to Reuters data.

The central bank sold an unspecified amount of dollars on Thursday, helping to strengthen the shilling to 88.80/89.10 at 1245 GMT, from 89.45/55 earlier in the session. The shilling had closed at 88.75/85 to the dollar last Thursday.

“For the next couple of days the shilling may rally a bit, but the sentiment is still for a weak shilling,” a senior trader at National Bank of Kenya, Chris Muiga, said.

Muiga added that the shilling’s direction in the coming days would depend on any further central bank action.

Traders said they expect the shilling to trade between 88.50 to 89.50 to the dollar in the week ahead.

 

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