Forex Weekly Outlook October 3-7
The US dollar retreated against the Euro-single currency on Friday, after the Deutsche Bank was said to have reached an agreement with the US Department of Justice (DOJ) to pay $5.4 billion to settle its mortgage-securities investigation instead of the original proposition of $14 billon. However, other factors contributed to the drop in the exchange rate of the US dollar, even though the consumer confidence (104.1) rose to its highest in 9-year and second quarter GDP was revised upward to 1.4 percent from 1.1 percent previously estimated. The Federal Reserve chair, Yellen Janet failed to convince the market that the decision to held interest rates at record-low wasn’t politically motivated, after Donald Trump accused the Fed chair of creating “a big, fat, ugly bubble” by leaving interest rates this low.
Again, three members of her own rate-setting group announced last week that they preferred to raise the federal funds rate by 25 basis points, which in turn validated the notion of disenchantment in the group. Nevertheless, the economy continued to create jobs at a solid pace but unemployment rate remains between 4.7 – 4.9 percent — which signifies that as some are being employed some are leaving for whatever reasons.
Although, the Federal Reserve Chair said that as long as monetary policy remains accommodative, that the economy would overheat and eventually pushed unemployment rate downward and boost inflation. But the question now is can this be sustained? This is one of the reasons the Federal Reserve is holding back, considering the fact that businesses tend to create lesser jobs with high borrowing cost and drop in job creation will lead to a surge in the unemployment rate and eventually drop in consumer spending that has been the backbone of the economy. So, according to the Fed Chair, it is risky to remove the accommodation as it is, hence, the no timetable for rate decision. This week, investors are waiting to see if Non-farm payroll added more jobs in September from the 151,000 recorded in August, and if the manufacturing (49.4) and services (51.4) sectors have picked up from August lows.
In Europe, the Euro-single currency plunged early in the week, following news of 12 hedge fund management companies withdrawing about $6.4 billion from Deutsche Bank, Europe’s largest investment bank, over concern the institution could go the way of Lehman Brothers if it failed to meet its multibillion dollar’s fine by the DOJ.
Currently, the region is struggling with the aftermath of the Brexit and lackluster growth which includes weak consumer prices (0.8%) and stagnant unemployment rate (10.1%). All these are expected to weaken business sentiment in the region and lead to more capital flight in the days to come — particularly with a judge in Milan, Italy approving prosecutors’ request on Saturday to try 13 bankers, including six current and ex-managers of Deutsche Bank over colluding to falsify the accounts of Italy’s third-biggest bank and manipulate the market.
I think it is going to get worse, even though a Deutsche Bank representative said the institution have enough liquidity to withstand withdrawals, trust and business confidence are going to drop as clients strive to make sense of the whole situation. Hence, Euro-single currency is expected to dip henceforth. Depending on Deutsche Bank proffer solution and market interpretation of such move.
In Japan, the economy continued to struggle with weak exports and low consumer prices even after introducing the “yield curve”. The data released last week showed consumer spending dropped 4.6 percent in August, while inflation (-0.4%), housing starts (2.5%) and unemployment rate (3.1%) are below expectation. The Bank of Japan last week shifted its focus to aiding banks’ profitability by making sure long-term bonds’ rates remain sufficiently above current negative rates, so banks can profit from lending into Japan’s stagnant economy. But the increase in demand has pushed yields on 10-year bond below BOJ’s zero target to -0.09 percent. This is likely to force BOJ to take action soon, if the whole yield curve concept is to be effective and the yen gains to be subdued.
In Algeria, OPEC members agreed last week to cut production to a range of 32.5 to 33 million barrels a day for the first time in 8 years. The announcement boosted crude oil prices and commodity currencies, before Iranian Oil Minister Bijan Zanganeh questioned the benchmark figure used by OPEC for the proposed production cut. Market experts are beginning to doubt the possibility of divided OPEC to go through with such decision come November when the members will meet again in Vienna, Austria.
As it is, the financial markets is largely being driven by speculators – what market participants perceived or interpreted a certain action by central banks or the Deutsche bank and the entire Europe region to be as uncertainties and risks associated with investment has increased across the globe. Therefore, traders are advised to be cautious as we seek to decipher Deutsche Bank situation, BOJ new yield curve policy and Non-farm payrolls this week. However, EURAUD and NZDUSD to my list this week.
Since our target was hit at 1.5020 three weeks ago, this pair has lost 355 pips. I believe the attractiveness of the Australian dollar due to the series of positive macro data released recently will push this pair further down. Again, I am pricing in the possibility of euro-single currency dropping more this week as the market digest Saturday’s news of 6 current executives and ex-managers of Deutsche Bank approved by an Italian judge for investigation. This will likely worsen the currency position against its counterparts.
Technically, since this pair closed as bearish pin bar three weeks ago and validated that by closing bearish two weeks ago, and even last week. The price action has turned bearish and with the uncertainties in the Europe area, we might see 1.4486 this week. Hence, as long as 1.4777 holds, I am bearish on EURAUD this week with 1.4486 as the target.
Last week, I was bearish on NZDUSD but OPEC decision to cut production bolstered all commodity currencies, even though US macro data were positive the doubt created by Federal Reserve Chair Yellen Janet weighs on the dollar strength. This week, I remain bearish on this pair because one, as long as 0.7362 resistance holds, this pair is bearish. Two, the New Zealand trade balance figure released last week revealed that deficit rose to 1265 from -351 previously recorded. This means, exports dropped more than estimated which is yet to reflect in the pair due to US fed issues.
This week, as long as 0.7362 resistance holds, I am bearish on this pair with 0.6989 as the target. But price below 0.7253 support will confirm downward movement.
Last week, I was bearish on NZDJPY but OPEC decision to cut production daunt the outlook. So this week, I will be standing aside on NZDJPY to assess Japan’s “yield curve concept” and market reaction to increase in demand that has pushed yields on 10-year bond below BOJ target.
Akinwumi Adesina Extols Africans in Diaspora on Cross-Border Remittance
African Development Bank (AfDB) President, Akinwumi Adeshina has extolled the tenacity and impacts of Africans in Diaspora on cross-border remittance.
According to the AfDB President, Africans in the diaspora are the continent’s largest financiers through their yearly remittances.
Speaking at an event organised by the Bank in collaboration with the African Union Commission, Adeshina noted that cross-border remittance into Africa is more than development assistance to the continent.
Investors King earlier reported that remittance into Nigeria and other countries in the sub-Sahara Africa region hits $53 billion in 2022.
The AfDB President said, “The value of remittances from the African diaspora doubled from $37 billion in 2010 to $87 billion in 2019, reaching $95.6 billion by 2021. Yet official development assistance to Africa in 2021 was $35 billion, or 36% of the remittances from the diaspora”.
Adeshina added that Egypt and Nigeria are among the top-ten remittance recipients globally, with $31.5 billion and $19.2 billion, respectively in 2021.
While speaking on the advantage of cross-border remittance to the African continent, the AfDB president noted that remittances have helped to meet financial, food, education, and health needs of many Africans, “it as well as serve as countercyclical sources of finance,” he said.
“The African diaspora has become the largest financier in Africa! And it is not debt, it is 100% gifts or grants, a new form of concessional financing that is the key for livelihood and security for millions of Africans” he added.
Similarly, Adeshina further positioned the need to eliminate premium charges on cross-border remittance into Africa. He noted that cross-border into Africa is twice what is it for South Asia.
He concluded that the Africans in diaspora can add more than remittance and investment, noting that they have skills, knowledge and know-how which can be needed for the development of the continent.
“They can help build world-class universities, and they can be mentors for the new generation of Africans,” he said.
E-Naira Transaction Volume Rises to N5 Billion in November Amid Intensified Campaign
More Nigerians embrace eNaira wallet as CBN takes adoption campaign across the nation
The Central Bank of Nigeria, (CBN) has disclosed that e-Naira transaction volume rose to a record N5 billion in the month of November following a series of campaigns initiated to encourage adoption.
Investors King had earlier reported how the e-Naira adoption team visited a number of parks in Abuja and the University of Lagos among other locations to drive the adoption of the digital currency.
Speaking at the Second Edition of the Africa Cashless Payment Conference, CBN’s Director of Information and Technology, Hajiya Rakiya Mohammed noted that transaction on the e-naira platform does not attract any charges.
She stated that Nigeria’s financial ecosystem is large to accommodate everyone.
Hajia Rakiya added that the e-Naira platform can be operated in any of Nigeria’s major local languages, stating that onboarding onto the e-Naira platform is a simple process.
She further stressed that the primary goal of the e-naira is to reduce the amount of cash in circulation, thereby downsizing the cost of producing paper currency, increase in revenue and direct disbursement to citizens.
Meanwhile, the e-Naira circulation has reached N401.82 million as more Nigerians embraced the digital currency.
It could be recalled that on October 25, 2021, CBN launched the e-Naira making Nigeria the first African country to have a digital currency.
During the unveiling of the e-Naira in Abuja, President Muhammadu Buhari stated that the digital naira would increase remittances, foster cross-border trade, improve financial inclusion and enable the government to make welfare payments more easily.
On his part, the CBN Governor, Godwin Emefiele disclosed that the e-Naira offered Nigerians endless possibilities in using financial services.
While admonishing more Nigerians to embrace the digital naira, Hajia Rakiya noted that “both banked and unbanked can use it, and it can be done through USSD *997#. We have integrated it with telecoms and NIBBS instant payments plus integration with money transfer operations so you can use e-naira for cross border”.
CBN Will Redesign Naira Notes Every Five to Eight Years; Say Emefiele
The central bank will henceforth redesign the nation’s legal tender every five to eight years
Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele has said the bank will henceforth redesign the nation’s legal tender every five to eight years.
The apex bank governor revealed at the unveiling of the new naira notes on Tuesday.
Godwin Emefiele explained that the naira redesign is in line with global best practice noting that the naira needed to be redesigned and re-issued every five to eight years.
According to the CBN governor, previous administrations lacked the political will to approve the redesign of the naira notes. Stating that it is regrettable that the naira has not been redesigned for the past 19 years.
“In the past, I have to confess that attempts by the CBN to redesign and re-issue the naira notes have been resisted. It is only President Muhammadu Buhari that has exhibited the courage to do so,” the CBN governor stated.
Emefiele added that going forward, naira notes will be redesigned at intervals to address some peculiar issues.
“After today, the CBN will begin to redesign and reissue the naira every five to eight years,” he said.
Investors King had earlier reported that President Muhammadu Buhari unveiled the redesigned naira notes at the Federal Executive Council (FEC) meeting today.
Among those who joined the president with the unveiling include the CBN governor and the EFCC chairman.
Recall, in October, the CBN announced it will redesign the N200, N500 and N1,000 notes in line with its mandate.
Meanwhile, the CBN governor has disclosed that the new naira notes can not be counterfeited because of the features embedded in them.
Similarly, he added that security agencies would be monitoring people making withdrawals at the counter to sniff out money laundering and unravel illegal usage.
“The CBN has moved to a cashless economy. We will restrain the volume of cash someone will withdraw over the counter. We will follow up with the person’s data to know the reason for such withdrawal,” he concluded.
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