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Local currency under pressure from rising dollar

Kampala, Uganda | THE INDEPENDENT |  The Uganda Shilling continues to trade under pressure from the US dollar as demand for the US currency rises above the supply, according to experts. On Monday, the local currency opened trading at Shillings 3,815.63 buying and 3,825.63 selling according to the official rates issued by the Bank of Uganda, more or less the same as the closing rate on Friday.

By Midday, the exchange rate had risen to Shillings 3,818.46 buying and 3,829.60 selling, while Private foreign exchange bureaus sold the greenback at an average of Shillings 3853.6. Through last week, the shilling remained within a narrow range as the little month-end inflows were outweighed by the consistent demand from corporations.

According to Catherine Kijjagulwe, Head of Trading at Absa Bank Uganda, the unit was forecast to remain under pressure in the coming weeks as some Corporations slowly start to purchase dollars.

This is because, at this period, the companies are preparing to start paying dividends between March and June.

She adds that there is also some pickup in the economic activity as education institutions reopen, increasing the demand for some goods and services. The demand for the dollar by importers could be slightly affected by the Chinese holiday (the Qingming Festival) that comes in early April.

Reports show that during this period, trade begins to slow and that international imports from China are greatly reduced, affecting activities in economies that heavily trade with the country. This festival also affects transportation and logistics, which may lead to delays at ports.

“The Chinese holiday is likely to impact some importer demand, but overall activity should remain robust with continued dollar inflows from commodity exporters,” says Ms Kijjagulwe.

She that through this week, there is likely to be more losses for the Shilling.

“The currency has comfortably breached the 3820 level and the market is waiting to see if the 3850 psychological level will trade in the near term with anticipated trading within the 3780 – 3880 levels.

”On Wednesday, Bank of Uganda mopped up 722 billion out of the market through an overnight Repo, ahead of the Monetary Policy Committee meeting scheduled for Tuesday.

On the East African market, the Kenya shilling saw limited activity during the week, with some dollar flows filtering into the market and covering some of the demand. The unit traded within the 160.00 /161.00 level last week and is expected to maintain trading within the range of 159 to 165 per dollar, “with the expectation of some horticulture flows and flows targeting the Infrastructure Bond issuance,” Kijjagulwe said.

On the global market, the US dollar index, which tracks the greenback against six other major currencies, rose to 104.3, its highest since Nov 17. The euro fell to its lowest since December 11 at 1.0747 and was last down 0.36 per cent at 1.0752 dollar.

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