NAIROBI (Reuters) - The Kenyan shilling firmed slightly against the dollar on Wednesday, helped by banks trimming their long dollar positions, and traders said it could strengthen more as the central bank continues to absorb liquidity and global risk aversion eases.
At 0746 GMT, commercial banks quoted the shilling at 85.25/45 per dollar, firmer than Tuesday's close of 85.40/60.
"It might firm (further) on central bank's tightening of liquidity," said John Muli, a trader at African Banking Corporation.
"Globally, the euro and pound are recovering. If this continues it's likely we may see a stronger shilling too."
The Central Bank of Kenya (CBK) has been mopping up liquidity since April 5 and moved to introduce longer tenure repurchase agreements last week.
Traders said the shilling could trade in the 84.80-85.80 range this week.
The currency hit a five-month low of 87.80 per dollar on May 31 as investors rattled by the woes in Greece and Spain moved out of riskier assets globally. This week riskier assets have fluctuated as optimism and disappointment have alternately gripped financial global markets.
Typically, when the euro weakens against the dollar, it affects the shilling as investors flee from assets perceived to be risky in emerging and frontier markets.
Citibank said in a daily report that the regulator's continued mop ups would provide some support for the shilling, although the developments in Europe were key to watch for any price action locally.
