Forex trading slows down as year nears end

Thin and erratic trading are expected to mark the movement of the Kenya Shilling as the year draws to an end.

Currency traders say subdued trading activity from both importers and exporters, who break for the Christmas and New Year’s holidays is likely to muffle the market to silence up until January next year.

However, the dealers still expect the shilling to strengthen as little corporate demand for the US dollar and increased inflows from tourism favour a stronger local unit.

“Markets are slowing to a halt. Corporates are closing down their books and securing any gains they have made,” says Duncan Kinuthia, senior currency dealer at Bank of Africa.

The Kenyan shilling gained slightly against the dollar in slow trade on Friday in what traders said could be the last active day in the market before the year’s end.

By mid morning trading, commercial banks quoted the local unit at 75.25/35 per dollar compared to Thursday’s close of 75.35/45.

The shilling is seen trading in the 75.00-75.50 range in coming days, traders said.

But as fewer trades take place in the market, the chances that an occasional large order could be placed raises the chances of a spike or fall of the shilling.

A rapid fluctuation of the Kenyan currency tends to make investors more uncertain about their earnings from international trade and slows their activities.

As a consequence, international traders and investors tend to prefer more stable exchange rates and will often pressure governments and central banks to intervene in the foreign exchange market whenever the exchange rate becomes volatile.

Dealers said last week the Central Bank had held back from buying dollars in the market and demand was minimal, with most clients having shut down for the holidays.

“I think most of us will be pretty square in the market. Today is more or less the last active trading day,” said Ignatius Chicha, treasurer at Citibank.

This year, the local currency fuelled by improved dollar inflows from tourism, horticulture, agriculture and remittances from the Diaspora, has enjoyed long periods of stable exchange rates against major currencies.

Currency dealers point out that Kenya’s long anticipated debut in the international debt markets through the issuance of a Eurobond next year, will also lead to a strengthening of the shilling.

The general strengthening of the shilling is however a bitter pill for importers who have to fork our more Kenya shillings to obtain one unit of the greenback.