JOHANNESBURG - The Kenyan and Ugandan shillings are expected to trade in a narrow range next week if the east African countries' central banks keep interest rates on hold as expected.
In Nigeria, the naira is likely to weaken barring central bank dollar sales or additional dollar flows from oil companies.
Kenya's shilling is expected to trade in a tight band as the market looks ahead to a Sept. 3 monetary policy meeting, in which the central bank is expected to keep its lending rate on hold for the second straight sitting.
Duncan Kinuthia, head of trading at Commercial Bank of Africa, said he expected the shilling to trade in the 87.30-87.80 to the dollar ahead of the rate meeting.
"Unless inflation goes beyond 7 percent I don't see them (central bank) acting yet," Kinuthia said, adding that the shilling's direction will depend on demand and supply after that.
Kenya's statistics office is due to release August consumer price inflation data on Friday. In July, year-on-year inflation stood at 6.02 percent, a one-year high, but within the 5-7 percent central bank target band.
The regulator kept its key rate at 8.50 percent in July to allow previous rate cuts to filter through the economy.
A Reuters survey of 16 economists taken over the past week forecast Kenyan interest rates would stay on hold until at least the end of this year to counter rising inflation and an under-pressure currency.
"If the rate is cut then we do expect commercial banks to lower lending rates and more credit to flow into the economy. That would weaken the shilling but still such a market reaction to the rate decision would take time," said Faisal Bukenya, head of market making at Barclays Bank in Kenya.
Uganda's shilling is seen trading in a narrow range if the central bank holds its key rate decision as expected, but a surprise cut in the rate could weaken the local currency in the short-term.
"We anticipate inflation will largely remain around the central bank target of 5 percent in which case the rate will be held ... that would keep the shilling hovering around 2,575-2,585 range," said Faisal Bukenya, head of market making at Barclays Bank
"On the other hand if the rate is cut then we do expect commercial banks to lower lending rates and more credit to flow into the economy. That would weaken the shilling but still such a market reaction to the rate decision would take time."
Uganda's statistics office is due to release August consumer price inflation data on Friday, followed by the central bank's rate meeting on September 3.
Tanzania's shilling is expected to hold steady against the dollar in the week ahead, helped by inflows from cotton exports and a slowdown in demand for the greenback from the oil sector.
Traders in Tanzania's commercial capital Dar es Salaam quoted the shilling at 1,616/1,621 to the dollar on Thursday, little changed from a week ago.
"Unless we start seeing some demand from oil and other sectors, we expect the shilling to remain stable next week," said Hamis Mwakibete, head of trading at Commercial Bank of Africa Tanzania.
Market participants said they expected the shilling to trade in a tight 1,610-1,620 range over the coming days.
The Bank of Tanzania said on its website it traded $53.1 million on the interbank foreign exchange market over the past week.
The naira is seen depreciating further against the greenback next week as dollar flows from oil companies may not be sufficient to meet the demand for hard currency.
The local currency was trading at 162.85 to the dollar at 1117 GMT on Thursday, weaker than the 161 level it was trading at last Thursday.
Traders said month-end dollar sales by oil companies fell below expectations, while demand for dollars remains strong.
"The naira should cross the 163 to the dollar level next week, unless there are additional dollar flows from oil companies or the central bank sells directly to some banks to provide support for the naira," one dealer said.
Nigeria's central bank last month hiked the cash reserve requirement for public sector deposits to 50 percent, from 12 percent, in a bid to tighten liquidity and shore up the currency's value, but the measure has not halted the naira's decline.