London - Kenya and Uganda's shillings are expected to strengthen against the dollar in the week ahead, helped by central bank intervention and inflows from offshore investors buying government debt.
Kenya's shilling is seen recovering from its recent five-month low after the central bank kept its key lending rate high and introduced longer-dated repurchase agreements (repos) to take out excess liquidity.
The central bank left its benchmark interest rate at 18 percent on June 5, sticking to its tight monetary stance for the sixth straight month. It also unveiled its latest weapon against possible short-selling of the shilling - longer tenor repos - to soak up excess liquidity from the market.
"Funding long dollar positions is going to be expensive seeing that the central bank will be mopping up for longer," said Duncan Kinuthia, head of trading at Commercial Bank of Africa.
At 1003 GMT, commercial banks quoted the shilling at 84.60/80 per dollar, 1.6 percent firmer than last Thursday's close of 86.00/20.
The shilling has recovered from a five-month low of 87.80 per dollar hit last Thursday on the back of a global dollar rally, to post a 0.5 percent gain for this year to date.
Dickson Magecha, a trader at Standard Chartered Bank, said attractive government debt yields could also lend support to the shilling.
The yield on the 182-day Treasury bills edged up at auction on Wednesday for the first time since January.
An expected fall in demand for Treasury bills as banks put their money in the new longer tenor repos could also cause further jumps in yields, fixed-income traders said, further supporting the shilling through increased dollar inflows.
Uganda's shilling is expected to gain against the dollar over the next week, buoyed by tight liquidity and inflows from offshore investors participating in a Treasury bill auction.
The Bank of Uganda is scheduled to sell 120 billion shillings ($48.39 million) worth of Treasury bills next Wednesday, and traders said yields were still attractive for overseas investors despite having fallen from their peak.
At 1055 GMT, commercial banks in Kampala quoted the local currency at 2,475/2,485, stronger than last Thursday's close of 2,495/2,505.
"We might see some limited inflows into the auction, and together with the liquidity squeeze the two factors will yield some gains for the shilling," said Ahmed Kalule, a trader at Bank of Africa.
An interest rate cut last week, which the market had feared would trigger a plunge in the shilling, has instead left the currency largely stable around 2,490, underpinned by the central bank's vow not to allow the euro zone crisis to hurt its currency.
The bank trimmed its key lending rate for this month to 20 percent from last month's 21 percent and said monetary policy easing was needed to spur credit flow and invigorate slowing economic growth.
The bank has in the past sold dollars and soaked up excess liquidity whenever the shilling has come under severe pressure.
Tanzania's shilling is seen strengthening against the dollar in the days ahead, driven by expected greenback inflows from the agriculture and tourism sectors.
Commercial banks in Dar es Salaam posted the shilling at 1,588/1,592 on Thursday, stronger than 1,590/1,595 a week ago.
"The shilling has been appreciating. The main reason is that there isn't a lot of demand and we have been receiving some inflows from tourism and agriculture," said Emmanuel Mwasanguti, a dealer at CRDB Bank.
Tanzania's 2011/12 financial year ends in June. Traders said the shilling could trade in the 1,580-1,590 range next week.
"The shilling might appreciate towards the beginning of the new financial year," said Eric Chijoriga, a dealer at NBC Bank. "Many corporates, especially mining companies, are expected to sell dollars to meet tax obligations."
The Bank of Tanzania said on its website it traded $26.65 million on the interbank foreign exchange market in the past week.
The naira is seen weakening further against the dollar next week as the interbank forex market is hit by dollar shortages in the face of sustained strong demand and offshore investors continue to exit the local debt market.
The naira was trading at 161 to the dollar at the interbank market on Thursday, after it slumped to a five-month low of 163.80 intraday on Wednesday, before closing at 160.90.
Traders said the central bank sold about $10 million to banks on Wednesday before the close of trading to calm the market and provide support for the naira, with mixed results.
"There is so much uncertainty in the market because of the exit of offshore investors in local debt paper and the lack of dollar flow from oil companies," one dealer said.
Dealers said most importers are bringing forward their obligations to hedge against further forex-driven losses.
"Unless the market experiences large dollar inflows from NNPC (the state oil firm) and the central bank sustains its direct sales to banks, the naira will continue to be under pressure," another dealer said.
Forex reserves are at a 21-month high of $37.64 billion, which gives the bank some leeway to defend the currency.
Ghana's cedi could gain slightly against the dollar next week on inflows from a 200 million cedi ($106 million) 5-year bond auctioned on Thursday, traders said.
Thursday's bond sale will be the third auction in support of the cedi, which has tumbled nearly 15 percent against the dollar since January.
"We expect the rates to remain steady next week with a slight bias for a cedi rise on the back of expected inflows," Barclays chief trader Kobla Nyaletey said.
The central bank issued a 200 million cedi 3-year bond in February and another worth 300 million cedis on May 23. Both were oversubscribed, with heavy offshore take-up.
Settlement for Thursday's bond, also open to offshore investors, is on June 11, and the central bank said the funds would be used to finance maturing debts.
Nyaletey said interbank trading, which had been dormant in recent weeks, was expected to pick up slowly.
By midday on Thursday, the cedi was quoted indicatively at 1.9250 to the dollar, from a band of 1.9135-1.9200 earlier this week.