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Yen Joins Aussie Resilience as Currencies Snub Policy Stimulus

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For policy makers from Tokyo to Sydney, expanding stimulus has proven to be no guarantee of a weaker currency.

The yen and Aussie are both trading stronger than before the announcement of increased stimulus in Japan and Australia over the past week. Both Bank of Japan Governor Haruhiko Kuroda and Reserve Bank of Australia Governor Glenn Stevenshave indicated that currency strength represents a headwind for their economies.

Part of the problem lies beyond their control: lackluster U.S. growth amid flare ups in geopolitical tension — including the U.K.’s decision to exit the European Union — has persuaded the Federal Reserve to hold off on raising interest rates this year. Futures signal tighter U.S. monetary policy won’t happen until mid-2017.

“The RBA delivered about what was expected, but the Aussie got caught up in the U.S. dollar’s fall,” said Imre Speizer, a market strategist at Westpac Banking Corp. in Auckland. “Had the BOJ been bolder, the yen would probably have weakened.”

The yen traded at 101.13 per dollar at 10:15 a.m. in Tokyo, 0.2 percent weaker than Wednesday. It had surged 4.3 percent over the previous three days.

Kuroda and his board disappointed investors Friday by leaving bond buying and the negative deposit rate unchanged, even as they increased exchange-traded-fund purchases. That sentiment was compounded after details of fiscal spending released Tuesday showed only 4.6 trillion yen ($45 billion) in extra spending from an overall package worth 28 trillion yen.

The Aussie fell 0.2 percent to 75.93 U.S. cents, following a 1 percent rally on Tuesday, when the RBA cut its key rate by a quarter point to a record 1.5 percent. The rates move was predicted by 20 of 25 economists surveyed by Bloomberg.

 

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Forex

Nigeria’s Diaspora Remittances Decline by 28 Percent to $16.8 Billion in 2020

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Nigeria’s diaspora remittances declined by 27.7 percent or $4.65 billion from $21.45 billion in 2019 to $16.8 billion in 2020, according to the World Bank Migration and Development report.

A critical look into the report shows remittances to sub-Saharan Africa declined by 12.5 percent in 2020 to $42 billion. This was largely due to the 27.7 percent recorded by Africa’s largest economy, Nigeria, which accounted for over 40 percent of the total remittance inflows into the region.

The report noted that once Nigeria’s remittance inflows into the region are excluded, remittances grew by 2.3 percent in 2020 with Zambia recording 37 per cent.

Followed by 16 percent from Mozambique, 9 percent from Kenya and 5 percent from Ghana.

The decline was a result of the global lockdown that dragged on the livelihood of most diaspora and unclear economic policies.

In an effort to change the tide, the Central Bank of Nigeria (CBN) introduced a Naira 4 Dollar Scheme to reverse the downward trend and boost diaspora inflows into the economy.

However, the reports revealed that other external factors like insecurities, global slow down, weak macroeconomic fundamentals, etc continue to discourage capital inflows.

On Tuesday, the CBN, in a new directive, announced it has halved dollar cash deposit from $10,000 to $5000 per month.

The move is geared towards discouraging overreliance on the United States Dollar and encourage local patronage and production.

Mr. Guy Czartoryski, Head of Research at Coronation Asset Management, had said in the report, “We looked at the top 10 banks and the breakdown of their deposits showed that 40 per cent of their deposits are in dollars and it is quite astonishing.”

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Deposit Money Banks Reduce Dollar-Cash Deposits by 50 Percent to $5000/Month

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Nigeria’s Deposit Money Banks (DMBs) have reduced the amount of United States Dollars that customers can deposit into their domiciliary accounts by 50 percent from $10,000 to $5,000 per month.

A bank official who preferred not to be mentioned confirmed the new policy to Investors King.

He, however, stated that the new policy does not apply to customers making electronic transfers as well as oil and gas companies and dollar payments into government accounts.

Checks revealed that the Central Bank of Nigeria (CBN) introduced the new policy to discourage the strong appetite for the United States Dollar, which has continued to rise.

A recent report has shown that despite persistent dollar scarcity, around 40 percent of bank deposits in the nation’s top ten banks were in dollars.

Mr. Guy Czartoryski, Head of Research at Coronation Asset Management, had said in the report, “We looked at the top 10 banks and the breakdown of their deposits showed that 40 per cent of their deposits are in dollars and it is quite astonishing.”

According to an analyst at ARM Securities Limited, Mr. Olamofe Olayemi, “this has to do with how much confidence the people have in the naira. Over time, we have seen significant depreciation in the naira.

“If you look at what happened in 2020, no one expected that the naira would be devalued twice in that year and even the outlook, this year is suggesting further depreciation in the naira.

“So, it makes sense to a lot of people to store their money in dollars. But, from the CBN standpoint, you agree with me that there is dollar scarcity.”

He, therefore, argued that the new policy might discourage financial inclusion and encourage cash outside the banking system.

Again, it is important for the flow of money to be captured in the system,” he said.

The CBN had extended its Naira 4 Dollar Scheme last week to further encourage dollar inflow into the Nigerian economy.

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Naira Closed at N411.25 to US Dollar at NAFEX Window

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The Nigerian Naira declined further against the U.S Dollar on Tuesday ahead of the Ramadan holiday to trade at N411.25 to a single U.S Dollar at the Nigerian Autonomous Foreign Exchange (NAFEX) window.

The local currency plunged as low as N420.23 per dollar during the trading hours of Tuesday despite opening the day at N410.33/US$ before settling at N411.25 to a US dollar.

Investors on the window exchanged $98.33 million on Tuesday.

At the parallel section of the foreign exchange, Naira traded at N483 to a United States Dollar; N673 to a British Pound and N580 to a Euro.

Foreign exchange rates remained largely unchanged at the bureau de change section, with the Naira trading at N482 to a U.S Dollar; N674 to a British Pound and N584 to a Euro.

Several factors continue to weigh on the Nigerian Naira, especially with the foreign reserves hovering around record low and crude oil output not at an optimal level.

Other factors like rising inflation rate and drop in economic activity due to COVID-19 effect on the economy and lack of enough fiscal buffer to cushion the economy.

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