Kenyan Shilling Slightly Dips Against The US Dollar

Last week, the Kenyan shilling depreciated against the US dollar by 0.2 percent to close the week at 107.9 shillings, from 107.7 shillings recorded the previous week.

The slight dip by the Kenyan shilling was mainly due to dollar demand from commodity importers outweighing the supply of dollars from exporters.

On a YTD basis, the shilling has appreciated by 1.2 percent against the dollar in comparison to the 7.7 percent depreciation recorded in 2020.

“Despite the recent appreciation, we expect the shilling to remain under pressure in 2021,” said analysts from Cytonn Investments.

Pressure for the Kenyan shilling will come from the rising uncertainties in the global market due to the Coronavirus pandemic, which has seen investors continue to prefer holding their investments in dollars and other hard currencies and commodities.

Read More: Kenyan Shilling Slightly Appreciated Against The Dollar In May

Pressure on the local currency will also come from the demand from merchandise traders as they beef up their hard currency positions in anticipation of more trading partners reopening their economies globally.

The shilling is, however, expected to be supported by the Forex reserves, currently at USD 7.5 bn (equivalent to 4.6-months of import cover), which is above the statutory requirement of maintaining at least 4.0-months of import cover, and the EAC region’s convergence criteria of 4.5-months of import cover.

The shilling will also sail through following the support from the stable current account position that is estimated to remain at a deficit of 5.2 percent of GDP in 2021,

Improving diaspora remittances evidenced by a 43.8 percent y/y increase to USD 299.3 mn in April 2021, from USD 208.2 mn recorded over the same period in 2020, which have cushioned the shilling against further depreciation.

Read More: Kenyan Shilling Jumps 1.3% Against The Dollar in 7 Days