Kenya’s shilling weakened the most in more than six months on Monday, as warning signs started to flash for a currency that has, until now, been resilient in the face of a political crisis that shows little sign of abating.
The currency of East Africa’s biggest economy has climbed 2.1 percent this year, reaching its strongest level since June 2016 and posting five straight weeks of gains even as a basket of emerging-market currencies declined amid a global stocks selloff. The shilling fell 0.3 percent by 1:26 p.m. Monday in Nairobi to 101.10 per dollar.
That rise had sent the dollar’s 14-day relative strength index versus the shilling plunging to 6.3 last week, its lowest in more than a decade and well below the level of 30 that some technical traders see as a signal it’s oversold. It rose on Monday to 22.6.
The currency’s price-swings are increasing. Its one-month historical volatility, while low relative to major emerging-market currencies such as South Africa’s rand, has spiked to the highest in more than a year.
Exotix Capital said in a note Thursday that the shilling was, along with the Pakistani rupee and Omani rial, the most vulnerable of the frontier-market currencies it covers. Hasnain Malik, a Dubai-based Exotix analyst, said the shilling was overvalued relative to its real effective exchange rate and cited Kenya’s widening current-account deficit as a concern.
Even stock investors have stayed bullish. Though the FTSE NSE Kenya 25 Index dipped 0.7 percent to 228.31 points on Monday, it’s still near a record high.
Equities have more or less risen steadily since Kenya’s election re-run in October, even though the main opposition alliance has refused to accept defeat. On Jan. 30, it held a mock ceremony to swear in its leader, Raila Odinga, as the “people’s president.” President Uhuru Kenyatta’s administration retaliated by arresting opposition officials and closing down some television channels.
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