Experts Foresee More Headwind For The Shilling

Posted by: Kyeyune Andrew Jonathan in Finance May 17, 2022

During its last trading session last week, the Ugandan shilling remained on the back foot, touching the technical levels of 3605/3615. The shilling received pressure from substantial demand for dollars from commercial banks, the energy and manufacturing sectors.

There seemed to be a similarity between the local unit trend and its peers in the region. The Kenyan and Tanzanian currencies were equally bearish.

“Corporates are expected to start remitting mid-month taxes next week. The market awaits to see if the demand will persist and if the psychological 3650 level will trade. Anticipation is for the shilling to trade within the 3580-3650 trading range in the short term,” Catherine Kiljagulwe, the head of trading at Absa, said.

As for the fixed income, money markets were liquid throughout the week with overnight yields trading between 6.00%-7.00%. The Bank of Uganda held a treasury bill auction.

Yields in the 91-day, 182-day and 364-day tenors cleared at averages of 6.766%, 8.160% and 9.001%, respectively.

Stephen Kaboyo, the managing director at Alpha Capital Partners, said yields have bottomed out.

Investors also expected interest rates to start rising as government leans toward the domestic banking system to fund part of the upcoming financial year budget. Yields have held flat for most of Q2 and Q3 of the current year.

The dollar has remained stronger than most major currencies in the global markets despite mixed economic data with a rise in jobless claims.

On Thursday the Euro weakened sharply as the Pound also followed suit due to the strength of the dollar.

In the energy market, oil prices fell, with the demand outlook dented by the Covid-19 lockdowns in China and growing recession risks.

Additionally, crude oil prices dipped slightly on Thursday with the rise in oil inventories, with Brent crude trading at $108.50 and West Texas Intermediate at $106.96. Gold traded at $1822.29.

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