Naira, Kenyan Shilling Seen Stable as Iran War Pressures Uganda, Ghana, Zambia Currencies

The naira and the Kenyan shilling are expected to remain largely stable over the coming week, while the currencies of Uganda, Ghana and Zambia are seen under continued pressure. Dollar demand remains elevated because of the Iran war, higher energy prices and corporate and import demand.

Uganda shilling extends losses

Uganda's shilling is expected to extend recent losses as the Iran war continues to drive demand for dollars. Commercial banks quoted the shilling at 3,925/3,935 to the dollar, weaker than last Thursday's close of 3,860/3,870.

Uncertainty over how long the conflict will last has prompted some market participants to make forward purchases to lock in exchange rates, said Adam Mugume, the central bank's executive director for research and policy. Demand for dollars from manufacturers and energy-sector firms remains strong, Mugume said. A trader said the shilling could test the 4,000-per-dollar level in the coming days, which would be its weakest level ever against the U.S. currency.

Ghana cedi and Zambia kwacha

Ghana's cedi is likely to fall modestly as dollar demand, particularly from the energy and services sectors, continues to outstrip supply on the interbank market. LSEG data showed the cedi trading at 11.50 to the dollar on Thursday compared with 11.45 a week earlier.

Ongoing support from the central bank and Ghana's artisanal gold marketing agency should help meet demand, a trader said. The trader added that significant weakening beyond current levels was not expected because the authorities have adequate reserves and are likely to intervene if excess demand threatens market stability.

Zambia's kwacha will probably edge lower amid strong corporate and import-related demand for hard currency. On Thursday, commercial banks were selling the currency of Africa's second-largest copper producer at 19.94 per dollar, compared with 19.53 a week earlier. Access Bank said in a note that the kwacha was being hit by higher global energy prices, despite elevated copper prices, slowing inflation and a calmer political environment after last month's election.

Naira holds steady

Nigeria's naira is seen holding steady, supported by central bank dollar sales and subdued demand for foreign exchange. LSEG data showed the naira quoted at 1,328 to the dollar on the official market on Thursday, around the same level at which it closed a week earlier. The currency was changing hands at 1,390 to the dollar in street trading.

Dollar sales by the Central Bank of Nigeria are helping to meet short-term demand, while import demand remains relatively subdued in mid-September compared with the typical fourth-quarter seasonal demand, a trader said.

For Nigerian businesses and consumers, the near-term outlook points to relative stability in the official market. The gap between the official rate of 1,328 and the street rate of 1,390 remains wide, so importers and travellers should keep watching both markets.