Corporate demand strengthens Shilling

On Wednesday morning, the Uganda Shilling was slightly stronger as commercial banks quoted the local unit at 3,690/3700 compared to Tuesday's close of 3,692/3,702.

However, by the close of the last week's trading session, the Shilling traded slightly weaker at pockets of demand emerged from key corporate players.

Stephen Kaboyo from Alpha Capital Markets said in the mid-week, the Shilling remained in a stable position anchored by flows mainly from portfolio investors looking for opportunities in the government debt market. Trading was in the range of 3685/3700.

In the interbank money market, overnight funds traded at an average of 7% while one week quoted at 10%.

In the fixed income market, the treasury bond auction registered a dip in yields for the 3 year and 10-year bonds, with yields coming out at 13.150% and 10-year at 14.257%.

Coupons for both were 11.00% and 14.250% respectively. The auction was oversubscribed with total amount tendered of 270 billion.

In the regional currency markets, the Kenya Shilling lost some ground on an uptick in demand from the interbank market, trading at 103.20/40.

"Outlook indicated a stable Shilling with a mild chance of strengthening on account of expected significant flows from exporters and investors participating in fixed income space," Kaboyo said.

In addition, the government of Kenya sent out invitations to potential commercial banks to subscribe to a syndicated loan of $1.45bn for budget support as external concessional financing sources thin out.

In the international markets, the US Dollar index edged higher after it briefly staggered following President Donald Trump's comments that the Federal Reserve policy is keeping the dollar high and harming the US manufacturers.

The greenback bounced back after the China Central Bank fixed the Yuan at a stronger level than expected boosting risk appetite. Earlier, China had allowed its currency to weaken past 7 per dollar for the first time since 2008.

Globally, policies of the major central banks are adding to the nerves that the global economic outlook may be worse than feared.

"Forecast for the Shilling indicates a stable currency as local players reserve local currency to settle mid-month tax obligations" Kaboyo added.

He further added that markets will probably also keep a keen eye on the outcome of the monetary policy meeting due to take place tomorrow where it is expected that Bank of Uganda will keep the policy rate intact given that all economic indicators are playing out well.