The shilling hits its lowest against dollar in two years

The shilling this week slumped against the US dollar, getting to its weakest point in two years.

The shilling shifted from its stable range of 3,600 and traded in the range of 3,645/3,655, for the first time in two years.

According to Stephen Kaboyo of Alpha Capital Partners, which watch the market, the shilling was under immense pressure on account of strong demand from the inter-bank, as commercial banks rushed to cover their short positions.

Kaboyo says significant demand was also seen from the energy, manufacturing and importers. By close of the week the shilling registered a modest rebound from its earlier losses as demand receded.

Kaboyo forecasts that the shilling will remain volatile as pockets of demand continue to play out coupled with an undercurrent of negative sentiment on account of domestic and regional political developments.

The Kenyan Shilling was also under pressure due to negative sentiments around the planned repeat presidential election and the deteriorating political and security situation in Uganda’s biggest trading partner.

Kaboyo says the anxiety kept the markets on the edge and the central bank of Kenya intervened and sold dollars in order to calm the markets.

The last time the shilling breached the 3,650 mark was in the last quarter of 2015 on account of prolonged drought and upsurge of conflict in South Sudan, then Uganda’s biggest trading partner.

Speaking to the media Thursday, Uganda’s Secretary to the Treasury Keith Muhakanizi said the Kenyan political turbulence is not yet having any significant effects on Uganda.


Ugandan shilling slightly strengthens against the dollar

The Uganda Shilling strengthened slightly against the dollar trading at 3585/3595 as the week ends.  The Shilling had weakened slightly in the midweek as demand for the dollar picked up.
For much of the last two weeks the Shilling had weakened against the dollar trading at over 3600 on both the buy and sell sides. Bank of Uganda had to intervene leading to the relative improvement.
Stephen Kaboyo from financial market watchers Alpha Capital Partners, says the outlook for the Shilling indicates a stable unit, with pockets of demand materializing mainly from corporates but not significant to alter the trend.

In the international currency markets, the dollar slipped to a 12-week low as markets went into a cautious mode following the US Federal Reserve meeting that presented a mildly upbeat view of the US economy.

Going forward, observes Kaboyo, markets have formed a view that the long term trend of the dollar is likely to be volatile as investors remain concerned about the aggressive posture on social and economic fronts by the new US President, Donald Trump.

Meanwhile in the Treasury bill auction, Shillings 65 billion was on offer. Yields dropped across all tenors to 13.088 per cent, 13.436 per cent and 14.053 per cent for 91, 182, and 364 day respectively.  The auction was oversubscribed with average bid to cover ratio of 2.537 percent.



The shilling is already staggering into the new year

The Uganda Shilling has lost ground to the US Dollar as the New Year sets in.

The Shilling is trading at an average of 3609/3629 against the Dollar, which is about 500 Shillings from the pre-Christmas rate.

Before Christmas, the Shilling traded against the dollar in the range of 3580/3590.  Major Forex Bureaus in central Kampala are posting over 3600 on the buy side on their counters.

The Bank of Uganda, whose exchange rates determine the market rates, has the Dollar buying at 3,604 and selling at 3.614 today.

Stephen Kaboyo from money market watchers Alpha Capital Partners attributes the weakening of the Shilling to weaker than expected foreign exchange inflows, especially from the Ugandan diaspora.

The Ugandan diaspora annually remit about one billion US Dollars, making their remittances the biggest foreign exchange inflow in Uganda. According to Kaboyo, seasonal inflows from Ugandans living abroad fell short of expectation.

Kaboyo adds that there has also been an increase in demand for the Dollar from importers and commercial banks, adding that commercial banks have been covering short positions, hence the depreciation.

On the near term outlook, Kaboyo says the Shilling will most likely remain weak as businesses resume operations after the holidays.

Kaboyo says in the international currency markets, the US Dollar has continued its bullish rally against major currencies mainly on expectation of higher US economic growth.

In the government securities market, Bank of Uganda issued 3-year and 15-year bonds with a total amount of 160 billion Shillings, with interest rates of 16.375% and 17.000% respectively. There was an over subscriptions on both counters.

Another factor that could have affected the availability of Dollars is decline in foreign direct investments from 950 million dollars in 2014/15 to about 750 million dollars in 2015/16 on account of delays in issuance of oil production licenses.