THE Ugandan shilling weakened on Monday as foreign-owned commercial banks stocked up greenbacks in preparation to make dividend payments abroad, but a scheduled Treasury auction this week was seen limiting the local currency's losses.
At 1127 GMT commercial banks quoted the currency of east Africa's third-largest economy at 2,570/2,580, weaker than Friday's close of 2,555/2,565.
"We've had a lot of (dollar) appetite from banks which I think is being driven by preparations for dividend payments," said Ali Abbas, trader at Crane Bank.
Money market analysts say the local currency's medium-term outlook is weak, undermined by concerns over the potential economic impact of aid cuts by western donors.
A total of about $120 million in grants and loans has been withheld or cut by western donors protesting Uganda's enactment of a harsh new anti-gay law.
Aid is an important source of foreign exchange inflows for Uganda which has a weak export base.
"The shilling could... get some respite this week if offshore participation in this week's treasury bonds auction is big," said a market note from KCB Uganda.
Bank of Uganda is due to sell a total of 180 billion shillings ($70 million) worth of new two and re-opened five-year Treasury bonds.
Shilling weakens on dividend flows