Forex Weekly Outlook August 15 – 19
The US dollar lost against most of its counterparts last week, even after the economy added 292,000 jobs in June and 255,000 in July. Most analysts attributed the weakness to worse than expected 1.2 percent GDP growth rate in the second quarter of the year, while some economists blamed it on surge in global risks and uncertainty surrounding Federal Reserve’s rate hike this year.
Either way, retail sales added to the dollar woes on Friday, plunging to a year low in July. Another sign that the consumer spending that has been supporting the US economy is waning as uncertainty increases. Although, unemployment claims came out better than expected and remains below 300,000 for the 75th consecutive weeks –yet consumer sentiment rose less than predicted.
But if July inflation rate and building permits came out positive on Tuesday, the US dollar will likely gain back part of its losses as investors are expected to respond positively because it would cast doubt on the validity of the retail sales figure in the long term. Also, it is good to note that the current market trend is largely being influenced by speculations, like we’ve seen in the Kiwi and Aussie dollar when market participants refused to price in the 25 basis points cut because according to them it was too small.
In New Zealand, the Reserve Bank of New Zealand cut the official cash rate by 25 basis points from 2.5 percent to 2.0 percent, but the local currency rose to a year high, peaking at 73.37 cents to a US dollar as banks reportedly passed just 5 – 10 of the 25 basis points to customers and increased deposit rates for savers by 0.5 percent. Hurting monetary expansion by the central bank to pressure costs in order to boost weak inflation. However, economists and experts have said the central bank needs to lower rate by another 25 basis points to 1.75 percent before the current monetary policy will be effective.
Whereas, retail sales rose in the second quarter of the year by 2.3 percent, exceeding 1 percent expected by most economists and 1 percent recorded in the preceding quarter. This indicates that the economy (consumer spending) is picking up even with high foreign exchange rate and weak consumer prices, but the weak China’s data released on Friday weighed on the local currency, plunging it against the US dollar even after US retail sales came out below expectation. However, if the RBNZ decides to hold off on further stimulus to monitor current improvement, especially with the second quarter employment change, unemployment rate and producer price index due on Wednesday, current stimulus may eventually crystallize.
Last week, the pound remained the worst performing currency for a second week after the Bank of England restarted its stimulus program on Monday. The pound declined 1.2 percent to $1.2911 against the US dollar, and weakened 1.9 percent to 86.51 pence per euro. This week, I will be looking at two currency pairs USDCAD and AUDUSD.
Last week, the Canadian dollar gained with crude oil, following the comments of Saudi Arabia’s Energy Minister Kahlid al-Falih on Thursday that the oil rich nation is prepared to discuss how to stabilize oil prices at an informal OPEC meeting in September.
Since then, the Canadian dollar has gained 122 pips against the US dollar, and currently trading below 1.3033 resistance and upward trend line drawn two weeks ago. This week, as long as 1.3033 resistance holds, I am bearish on USDCAD with 1.2723 as the target. The data for Canada’s July manufacturing sales will be released on Tuesday, while inflation rate and retail sales are due on Friday.
Two weeks ago I explained why I won’t be buying bullish Aussie dollar after the Reserve Bank of Australia expanded monetary policy. Last week, the currency climbed as high as 77.58 cents to a US dollar before retreating due to weak Chinese economic data, this week I think the weak Chinese data of Friday will likely reinforce sellers’ interest considering the 25 basis points cut is yet to be priced in and open up 0.7505 support, but first a break of 0.7588 is important for a bearish confirmation below the channel.
Australia’s monetary policy minutes is due on Tuesday, while both unemployment rate and employment change will be released on Thursday.
CBN Raises Customs Forex from N381/US$1 to N404.97/US$
The Central Bank of Nigeria has raised the Naira exchange rate for cargo clearance from N381/US$1 to N404.97/US$1.
This was confirmed by Uche Ejesieme, the Public Relations Officer (PRO), Tin Can Island Customs Command.
The PRO explained that it was not the customs job description to raise the foreign exchange rate but that of the central bank.
The N24 difference has been implemented on the customs system managed by Web Fontaine.
Commenting on the situation, Kayode Farinto, the Vice President of the Association of Nigerian Licensed Customs Agents, said the increase would further escalate inflation on import goods and hurt consumers’ buying power given the present economic situation.
An importer, Gboyega Adebari, who was shocked at the decision said stakeholders will be greatly affected by the decision.
According to him, “When we went to assess a job this morning, we were told that the exchange rate has been increased, though we have been expecting it, but we don’t expect that it would be so sudden. The implication of this on cargo clearance is that cost of clearance would increase by N24 difference.
“The cargoes that already enroute Nigeria would also be affected, the jobs that we want to clear this morning were affected.
“When you go back to the importer and request for money, they will tell you there is no notification of increase from customs, so the freight forwarders are the ones that would bear the additional cost.”
Naira plunged to N502 against the United States Dollar at the parallel market on Wednesday and traded at N715 to a British Pound and N605 against the European common currency, Euro.
Naira Hits N502 Against U.S Dollar at the Black Market
Persistent dollar scarcity amid devaluation and economic uncertainties plunged the Nigerian Naira to N502 per U.S Dollar at the parallel market, popularly known as the black market.
The local currency traded at N715 to a British Pound and N605 to a Euro on Wednesday morning.
At the Nigerian Autonomous Foreign Exchange Rate Fixing Methodology (NAFEX), the Naira opened at N411.15 to a United States Dollar before dropping to as low as N421.96 and eventually closing at N411.5.
The Central Bank of Nigeria had adopted the NAFEX rate as the nation’s official rate when it became clear that the apex can no long sustain Naira’s fixed-rate amid dwindling foreign reserves and weak revenue generation.
The NAFEX rate, popularly known as the Investors and Exporters Forex Window, was quoted as N410.15 to a United States Dollar on Tuesday, June 8, 2021 on the central bank’s official website.
The apex bank decision to devalue the Naira despite the ongoing economic challenges in Africa’s largest economy was because of the pressure from the World Bank and the International Monetary Fund, demanding the federal government to allow forces of demand and supply to determine the naira exchange rate against pegged Naira-USD rate.
However, with the Federal Government looking for approval from the two multilateral institutions for fresh loans, it became necessary to enforce those demands before new loan applications could be approved.
The World Bank raised Nigeria’s growth rate from 1.1 percent to 1.8 percent in 2021, saying a series of structural reforms and market-determined exchange rates will help boost economic activities.
Also, oil prices were projected to remain high in the near term.
South African Reserve Bank Imposes Administrative Sanctions on Authorised Dealer in Foreign Exchange with Limited Authority
The South African Reserve Bank (SARB) has imposed administrative sanctions on Master Currency (Pty) Limited, an Authorised Dealer in foreign exchange with limited authority (ADLA).
Authorised Dealers in foreign exchange (commercial banks) and ADLAs are persons authorised by the SARB to deal in foreign exchange transactions and are regulated accordingly. ADLAs include bureaux de change and are authorised to deal only in certain limited, designated foreign exchange transactions, including travel-related transactions.
The Financial Intelligence Centre Act 38 of 2001 (FIC Act) mandates the SARB to ensure that ADLAs have adequate controls in place to combat acts of money laundering and the financing of terrorism. Flowing from these responsibilities, the SARB inspects ADLAs to assess whether they have appropriate measures in place,as required by the FIC Act.
The administrative sanctions were imposed after the SARB conducted inspections at Master Currency (Pty) Limited, in terms of the FIC Act. The inspections found weaknesses in the control measures the ADLA, Master Currency (Pty) Limited, had in place to control anti-money laundering and combating the financing of terrorism.
It should be noted that the administrative sanctions were imposed because of certain weaknesses that were detected in the ADLA’s control measures which inhibited the ADLA from proactively detecting financial crime, and not because it was found to have facilitated transactions involving money laundering or the financing of terrorism.
The administrative sanctions imposed are as follows:
- a financial penalty of R100 000 in terms of section 45C(3)(e) of the FIC Act, for failing to provide ongoing training to employees to comply with the provisions of such Act in terms of section 43 thereof; and
- a directive in terms of section 45C(3)(c) of the FIC Act, to provide the requisite refresher training at all branches, and to submit confirmation and evidence that such training has been conducted and will continue to be conducted on an annual basis.
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