LOCAL FOREX MARKET AND MONEY MARKET REPORT Jan 07th – 11th 2007

FOREX:
The shilling started the week on a weak note against the dollar, continuing its downtrend from the previous week. It opened at a level of 68.80-90 and went to trade at levels of 69.60-70 by end of day on Monday. With market momentum bullish for the dollar, by Tuesday, the local unit had weakened to a level of 70.00 and once this level was breached an intra-day low of 70.80-90 was touched as corporates and traders scrambled for dollars. By Wednesday the shilling touched an 18-month low to close trade at 73.50-60 against the dollar on the back of threats by major donors to freeze aid and loans. Opening levels were 70.70-80 and trend was one way up for the dollar, with little selling interest seen. Inter-bank activity was heavy, and demand from traders squaring up positions was seen coupled with corporate as well as oil sector demand. The last time the dollar was seen at this level of 73.60-70 was on July 27th 2006. Most customers were interested to lock in forwards putting further pressure on the shilling. On Thursday the local unit gained good ground after profit taking was seen but trade was choppy with dollar opening at a level of 73.40-50 and strengthening to 70.70-80 by the end of the day. Before it ended the day at 70.70-80, there was some heavy inter-bank activity between levels of 71.50 and 72.90 and the yo-yo activity was due to profit taking and position squaring by traders. News that President Kibaki and Honorable Raila Odinga would meet face to face by Thursday evening led the market to sell off the greenback as this was positive news for the economy which has seen some uncertainty and unrest after the disputed elections. On Friday traders cut back their long dollar positions which had been previously taken on the back of uncertainty and unrest seen and shilling gained to a level of 68.30-40 before closing weaker at a level of 69.50-70 as some demand set in and position squaring ahead of the long weekend was seen. In the week ahead, trading direction is likely to be obtained by the outcome of the talks and negotiations’ going on between the two presidential candidates. Trading range is likely to be between 67.50 and 71.50.

Kenyan Money Markets:
Kenyan Money Markets: Money Markets were fairly liquid with amounts between KES 5 and KES 9bln being borrowed between inter-bank players and average rates rose through the week from 7.70% to 7.90%.

Kenya: Food Shortage Likely: Economists are warning that violence in the Rift Valley region, Kenya’s bread basket, will affect food production and supply, and dampen foreign exchange earnings from tea exports if the political stalemate is not resolved soon. Maize, tea and milk production stand to suffer most resulting in inflation and reduced foreign exchange revenue.

Kenya: Commodity Markets in Strong Runs: Key commodity markets maintained strong runs last week backed by strong demand as traders scrambled for available offers. The coffee and tea auctions were both busy partly because of shortages caused by unfavorable weather conditions and disruptions in supply due to political unrest especially in the tea producing areas west of the Rift Valley.