The Kenyan shilling hit a five-week high against the dollar on Wednesday, helped by tightening liquidity and importers holding back on dollar purchases in anticipation of further gains, traders said on Wednesday.
Market players said strong foreign investor appetite expected for Wednesday’s 10-year Treasury bond auction was supporting the shilling, but that usual end-month dollar demand could put pressure on the local currency in the days ahead.
Climbing for the sixth straight session, the shilling was quoted by commercial banks at 83.55/75 per dollar at 0725 GMT, a level it last touched in mid May and 0.7 percent stronger than Tuesday’s close of 84.15/35.
“The shilling is supported by (anticipated) dollar inflows into the 10-year bond on sale today and tightening liquidity in the market,” said a trader at one commercial bank.
“Dollar demand is also subdued at the moment, but end-month demand might weigh on the shilling in coming days.”
The Central Bank of Kenya will auction a 10-year Treasury bond worth 5 billion shillings later on Wednesday.
The bank has not issued a 10-year bond for almost a year, after yields shot upwards on the back of high inflation, and fixed income traders said this week’s auction was likely to be met by healthy demand.
The shilling has rallied nearly 2 percent in the last six sessions, mainly on aggressive tightening of liquidity by the central bank using longer tenure repurchase agreements (repos) and a build-up of foreign exchange reserves.
Bank of Africa said in a daily note to its clients that looking further forward the shilling could see support from dollar inflows into the tourism sector as the industry heads into a peak season.
Tourism, which earned a record $1.2 billion in 2011, is forecast to perform less well this year as Europe’s economies struggle to recover, cutting visitor numbers, and because of security fears.