Shilling hits 6-month high to dollar

The shilling has strengthened to a six-month high, supported by strong dollar inflows from buyers of Treasury bonds and remittances by Kenyans in the Diaspora.

The Kenyan currency closed at a high of 100.39 units to the dollar in Friday’s foreign exchange market trading.

Reuters live trade data showed the shilling strengthening for the better part of Friday, touching 100.31 at 3 p.m before weakening slightly to 100.39 units as the day drew to a close.

The news agency quoted traders saying that the strengthening of the currency was a result of increased dollar inflows, diaspora remittances and portfolio investors buying government debt.

“The Kenyan shilling firmed against the dollar on Friday due to dollar inflows from diaspora remittances and portfolio investors buying government debt amid reduced dollar demand from the energy and manufacturing sector,” said Reuters. The value of the local unit rose steadily in the course of last week. It had closed the previous week at 101.0833, before rising sharply on Monday when it hit 100.80 units to the dollar. It continued to strengthen in the course of the week, Central Bank of Kenya (CBK) data showed.

The 100.39 point is the strongest average trading for the local unit since August 10 last year, when it stood at 100.36 to the dollar – indicating that the current level is nearly a six-month high.

Following its last week’s meeting, the Monetary Policy Committee (MPC) indicated that the shilling was well cushioned, noting that the country had adequate foreign exchange reserves amounting to 5.3 months of import cover.

“The CBK foreign exchange reserves, which currently stand at US dollars 8.131 billion (5.3 months of import cover), continue to provide adequate cover and a buffer against short-term shocks in the foreign exchange market,” said the MPC.

Mid-week analysts had said that the value of the local currency would depend on the dollar flows after noting that it had been under pressure in some trading sessions.

It was time for buyers to get the foreign currency on the cheap. Commercial Bank of Africa (CBA) said on Thursday that the spell of strengthening shilling seen in recent days had prompted corporate buyers to take advantage, pushing the currency even stronger.

“The bout of shilling strength recently witnessed prompted corporate buyers to take advantage of the somewhat favourable prices, pushing the US dollar-Kenya shilling pair to the upper levels of the recent band,” said CBA.

The strengthening of the local currency came even as some analysts warned that it remained exposed to weakness because of the current account and fiscal deficits.

Some have advised investors to buy Kenyan Eurobonds to mitigate against the expected weakness of the local currency.

“We believe that the Eurobonds offer attractive returns and can act as a hedge against the Kenya shilling’s likely depreciation,” Dyer & Blair Investment Bank told clients in a recent research note.