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Oil companies’ dollar sale may boost naira

By on January 31, 2015

The naira is likely to be steady next week on dollar sales by oil companies, while East African currencies are expected to be supported by central bank interventions,Reuters has reported.

The naira is likely to trade around its present levels next week on the back of expected month-end dollar sales by some energy companies and intervention by the central bank.

The local currency has remained volatile in the wake of falling oil price and the exit of offshore investors in local debt and equity last year.

The naira was trading around 189.90 to the dollar on Thursday, same level it closed a week ago. The naira was however weaker than its Wednesday’s close of 186 after dollar sales from the Nigerian National Petroleum Corporation buoyed the currency.

The NNPC sold around $350m to some lenders on Wednesday, while the local unit of Royal Dutch Shell sold undisclosed dollar amounts on Thursday, keeping the naira stable.

Most oil companies in the country sell dollars to obtain naira currency for their domestic obligations.

“We expect that the local currency will derive further support from the usual month-end oil companies’ dollar sale in the coming days,” Citibank said in a research note on Thursday.

Kenya’s shilling is expected to trade in a tight range, with traders saying they were on the lookout for any central bank action that would keep it from weakening further.

Last week traders said the bank sold an unspecified amount of dollars to keep it from going past the 91.70 level.

“After we saw central bank come in last week, people have been jittery about getting to those levels, so we are on a wait and see,” a trader at National Bank of Kenya, Ian Kahangara, said.

Traders said they forecast the shilling to trade in the 91.70 to 92.00 range in coming days.

The Ugandan shilling was also seen rangebound, underpinned by expected central bank interventions and scarce local currency liquidity.

“The central bank has demonstrated resolve to keep the shilling in line… we’re likely to see rangebound stability,” the Chief Dealer at Orient Bank, Isaac Iga, said.

The central Bank of Uganda has sold dollars in the market five times this month to prop up the local currency.

Much of the depreciation for the shilling, which is down 3.1 per cent against the greenback this year, has been caused by demand from commercial banks eager to hedge against dollar.

Iga said the shilling would likely exchange hands in the 2,840-2,880 range in the coming days.

The shilling could weaken on dollar demand by importers after gaining this week from month-end hard currency inflows.

Commercial banks quoted the shilling at 1,782/1,792 to the dollar on Thursday, stronger than 1,835/1,845 a week ago.

Traders expected the shilling to trade in the 1,810-1,820 range over the coming days.

The Bank of Tanzania said on its website it had traded $52.75m on the interbank foreign exchange market over the past week.

The kwacha is expected to remain volatile next week as investors in Zambia expect the outcome of a presidential election last week.

“The short term outlook is for the volatility to remain quite substantial but to reduce as we move further from elections,” one commercial bank trader said.

 

[Punch]