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Dollar Drops to Two-Week Low Versus Yen as Treasury Yields Fall



  • Dollar Drops to Two-Week Low Versus Yen as Treasury Yields Fall

The dollar dropped to a two-week low against the yen as traders pushed it through stops in thin trading amid a slide in Treasury yields.

The greenback weakened against all its major peers Thursday, with leveraged funds shorting the dollar against the yen as the currency pair continued a pull back from a 10-month high. Bloomberg’s dollar gauge posted a sharp retreat from gains earlier this week, after a strong five-year Treasury note auction Wednesday sent yields lower, sapping demand for the U.S. currency.

“On the rise we didn’t see any strong resistance, so it will be the same on the fall,” said Simon Pianfetti, a senior manager at the market solutions department at SMBC Trust Bank Ltd. in Tokyo. Stop-hunt below 116.55, the low set on Dec. 19, he said, adding that the next cluster of support lies at 115-115.25 yen.

The dollar has climbed about 11 percent against the yen since the U.S. election of Nov. 8 that swept Donald Trump to the presidency, the most among Group of 10 peers. The rally may be over-extended given that the S&P 500 Index and Treasury yields showed signs of topping out in mid-December when the Federal Reserve raised benchmark rates.

“Almost nobody believes Trump can implement everything he’s promised to do,” said Satoshi Okagawa, senior global market analyst at Sumitomo Mitsui Banking Corp. in Singapore. “At some point, Treasury markets will come to realize that, and yields will decline.”

  • USD/JPY sinks as much as 0.9% to 116.23
    • Slow stochastics bearish with %D falling. Read: Dollar-Yen Rally May Fizzle as Questions Over Trump’s Plans Grow
    • One-day yen repo rate for transactions starting next business day slides 16bps, most since Sept. 29, to -0.247%: Japan Securities Dealers Association
  • BOJ Governor Kuroda says government can’t relax as nation still isn’t in condition to hit 2% inflation target: Nikkei
  • Dollar rally is set to extend next year, and magnitude of gains may surprise bulls, says Todd Elmer, FX strategist at Citigroup
  • EUR/USD rises 0.4% to 1.0453
  • AUD/USD gains 0.4% to 0.7205, with MACD and slow stochastics suggesting shift in momentum after 3-week slide; Aussie bonds higher, in line with Treasuries
    • NAB notes that the last time the RBA’s cash rate sat below the Fed’s, AUD/USD fell to as low as 0.48; however, stronger terms of trade indicate any drop for Aussie will be limited to 0.65 unless there was a U.S.-instigated trade war
  • Oil retreats from 18-month high, while gold advances. Yield for 10-year Treasuries falls 2bps to 2.49% after slumping 5bps Wednesday

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


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



US dollar - Investors King

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



United States Dollar - Investors King Ltd

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



Naira Dollar Exchange Rate - Investors King

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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