Interbank, Commodity Flows shore up Home Unit

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The local unit opened the week at levels of 3675/3685 and some Corporate demand seen earlier in the week led to its depreciation to touch lows of 3698/3708.

This was, however, short-lived as healthy flows from offshores targeting the bond auction, interbank and commodity flows led to a reversal in trend with the shilling opening Friday’s session marginally strong at 3680/3690.

Overall, the shilling is expected to trade within the 3670 – 3730 range in the short term and month-end NGO flows may offer the unit some support as the market looks out for demand from importers and other Corporates with the elections out of the way now.

Money Markets were fairly liquid during the week with overnight averaging within the 7.00% – 7.25% range. Bank of Uganda was in for their usual open market operations to mop up any excess liquidity through Repos and Deposit Auctions.

The Central Bank also held a sh 450 billion 3-year and 10-year Treasury Bond auction that was well subscribed and saw yields clear at averages of 15.75% and 16.15% respectively.

The auction spurred secondary market activity that led to a downward shift in the government securities yield curve.

Bank of Uganda will hold a sh245 billion Treasury Bill auction on Wednesday 27th January 2021.

The Kenya shilling gained during Thursday’s session on the back of reduced corporate demand and interbank supply.

The unit opened the session at 110.10/30 and appreciated to touch 109.70/90 helped by flows from offshore investors towards the Infrastructure Bond.

The Kenya shilling is expected to trade within the 109.40 – 110.20 range in the short term.

Joe Biden was inaugurated as US president on Wednesday as the dollar weakened against major currencies.

Investors await a major stimulus from the new President and global central bank support to cushion the coronavirus’ damage and bolster growth.

The country also eagerly awaits his actions on many of the controversial policies of his predecessor.

The Pound strengthened against the dollar and the Euro, as the UK rolls out the Covid-19 vaccine, which has increased hopes of accelerated economic recovery.

The Euro strengthened as the European Central Bank’s first policy meeting of the year brought no change to its supportive policies.

The ECB kept its deposit rate unchanged at -0.5% and maintained the overall bond purchases at 1.85 trillion.

Oil prices eased due to an unexpected rise in US crude stockpiles, Brent rose 2 cents to settleat $56.10 a barrel.

Gold slid 0.1% to $1,864.66 per ounce.

The writer is the Head of Trading at Absa Bank Uganda.

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