US shutdown troubles push shilling, stocks to new highs

The shilling strengthened to a four-month high against the US dollar Tuesday on the back of selling by global traders, as the stock market gained for the tenth consecutive trading session.

The shilling was pushed by among other factors the decision by the government to continue sale of the infrastructure bond and US budget deadlock.

Central Bank quoted the local unit at 85.25 to the dollar in Tuesday’s mean indicative rates, up from Monday rate of 86.13. The 88 cent differential marks the largest single inter-day day rise against the dollar since February.

Commercial banks quoted the currency at an average of 85.15 to the dollar Tuesday, compared to the closing rate of 86.10 on Monday.

The shilling has gained 2.7 per cent since the beginning of September largely on the back of high dollar inflows into the market as a result of the oversubscribed government Sh20 billion infrastructure bond.

(READ: Massive uptake of infrastructure bond boosts shilling’s value)

“The CBK decision to open up the infrastructure bond to continue selling, coupled with the US stalemate have boosted the shilling. However, the market remains highly volatile as the currency is caught up in the cross-hairs between fairly robust economic data and elevated political risk,” said Commercial Bank of Africa dealer Joshua Anene.

Traders in commercial banks also attributed this to investor jitters over the US budget deadlock, with the prospects of a first ever US debt default looming over the greenback.

“The Kenya shilling firmed to a 16-week high as the budget standoff in the US encouraged dollar selling,” said ABC Bank in a note on Tuesday.

The US government has shut down nonessential services following the budget deadlock between the executive and House Republican majority.

Traders on Tuesday reported increased appetite for domestic bonds and equities from foreign investors.

The foreign inflows into the equities market have been the catalyst for increased prices of blue-chip shares pushing Safaricom and KCB to new highs. Turnover in bonds trading at the NSE also doubled on Tuesday to stand at Sh4.2 billion compared to Sh2 billion on Monday.

The NSE-20 share index closed the day 50 points up to 4,930 points. Capitalisation moved up to Sh1.87 trillion from Sh1.84 trillion on Monday.

Safaricom, whose share price has now appreciated by 84 per cent since the beginning of the year, closed at a new all-time high of Sh9.40 per share.

KCB touched a high of Sh50 per share mark for the first time in Tuesday’s trading, and the counter closed the day at a Sh49.75 pole position, a shilling up on Monday’s 48.75.

Equity Bank also moved to a new one-year high of Sh37.25, with the big counters all seeing heavy foreign investor demand.