Tight US dollar inflows hit Uganda shilling again

Tuesday, 1st March, 2011

THE Ugandan shilling fell against the dollar on Tuesday, dragged lower by tightening US currency inflows and traders saw it testing the key psychological level of 2,400 in the week ahead.

Commercial banks quoted the local currency at 2,365/2,370 against the dollar, down from Monday’s close of 2,360/2,365.

“We might touch 2,400 soon,” said Lucas Ochieng, a trader at Orient Bank Uganda.

“The (dollar) inflows are really dried out. One of the reasons is that coffee, which is the major export earner thisseason, is off until June/July.”

A combination of speculative trading by offshore players and soaring demand from corporates for dollars has depressed the shilling since January.

The exchange rate hit a record low of 2,400, on Jan. 18, but the central bank said it would aggressively beef up dollar supply to keep the shilling from that level, which it said was harmful to macroeconomic stability.

Some traders told Reuters they did not expect the Central Bank to sell dollars this week.

“Dollar demand is expected to increase further within the month as multinationals pay out dividends for the last year,” Barclay’s Bank Uganda said in a market report on Tuesday.

“Expectation is for the shilling to weaken further, unless the Central Bank intervenes to support the local unit, for the moment it has kept on the sidelines.”

Meanwhile, the Kenyan shilling weakened against the dollar on Tuesday for a fourth session in a row, hurt by increased demand for the US currency from oil importers as crude prices continued to rise internationally.

Commercial banks quoted the shilling at 82.60/70 to the dollar, weakening from Monday’s close of 82.45/55, its lowest level since August 2004.

“There has been continued demand mainly from the oil sector

while we are not seeing any inflows, so that has really put some pressure on the shilling. And again, the psychological break of 82.50 is opening up the upside,” said Steve Lagat, a trader at CFC Stanbic Bank.

International oil prices have risen due to turmoil in the

Middle East that has hit crude production in key exporter Libya.

Reuters