The naira is expected to lose more ground next week, hit by the slide in crude prices and a decline in dollar sales by oil companies operating there.
Wider risk aversion to emerging markets in general is seen keeping other currencies on the backfoot as well.
The Nigerian naira is seen trading lower next week, around the 183 level that it fell to on Friday, as sentiment in Africa’s top crude producer is soured by the sharp decline in oil prices.
The naira has been trading around the 178 – 182 range against the dollar in volatile trade the past week, with dollar sales from oil companies its only life line, as U.S. crude plumbed a 5-1/2-year low of $46.83 on Wednesday.
Now that those sales have dried up, it could test the lower end of that range, dealers say. It is trading well outside the central bank’s 160-176 target range since a November devaluation.
“This week there were a lot of oil company sales which put a large chunk of dollars through the market. Next week we are not expecting that,” one dealer said. “The central bank may intervene, but I’m not sure how successful that will be.”
Much will depend on volume. If the central bank only sells a couple of million dollars here and there, dealers say, it will give little support. If it uses substantial reserves, the naira could find support above 180 they say.
The Kenyan shilling is expected to weaken in the next week as investors shun risky assets in favour of the dollar, which has been rising against other currencies.
The shilling traded at 91.05/15 per dollar on Friday, barely moved from the previous day’s close of 91.10/20.
“The shilling’s fortunes are heavily dependent on dollar global trends. We will probably see the 92.00 level trade soon,” said Chris Muiga, a trader at National Bank.
He said the central bank was likely to let the currency weaken, calculating that the slump in the price of crude oil in global markets meant there were no serious risks to inflation.
The Tanzanian shilling is also expected to ease slightly against the dollar next week, weighed down by demand from importers, unless the central bank steps in.
Commercial banks in east Africa’s second-biggest economy quoted the shilling at 1,740/1,750 against the dollar on Friday, unchanged from the previous day, but slightly weaker compared to a week ago.
“The shilling will probably continue to weaken next week. The market is a bit volatile at the moment and we are not seeing any inflows of the U.S. currency,” said Flora Mrema, a trader at TIB Development Bank.
“The market it unpredictable, but we think the shilling will likely come under more pressure against the dollar next week.”
Market participants expected the shilling to trade in a tight 1,740-1,750 range over the coming days.
The Bank of Tanzania said on its website it had traded $36.6 million on the interbank foreign exchange market over the past week.