- Foreign Reserve Hits $26.9bn, as Value of Open Contracts Rises
Nigeria’S foreign exchange reserves increased week-on-week by 2.51 per cent toUSD26.88billion, according to latest update from the Central Bank of Nigeria, CBN, last weekend.
The latest uptick in the reserves came against the backdrop of a week-on-week decline in global crude oil price, a factor that had stoked the upswing in reserves in the past one month. Brent crude oil price and OPEC’s reference basket price moderated lower week-on-week by 1.39 per cent and1.36 per cent toUSD56.11per barrel and USD52.30 a barrel, respectively, at the weekend.
But activities at the interbank foreign exchange market remained minimal even as more pressures came on the parallel market segment of the foreign exchange market, sending Naira value, at N497/ USD1, closer to the dreaded N500 mark.
This was despite indications by the Association of Bureau De Change operators to adopt N400.00/USD1 as BDC rate during a meeting with CBN a day before the latest depreciation.
However, in the Foreign Exchange Futures Market, the value of open contracts rose to US$3.8 billion from US$3.7 billion recorded in the first week of the year. It was observed that the value of the “soon-to-mature” Naira/USD January 25, 2017 dated contracts rose by US$58.3 million during the week.
Meanwhile exchange rates at the spot market for one month, three months, six months and 12 months forward contracts were stable at N305/USD, N305.25, N320.18/USD, N330.537/USD, N346.07/USD and N378/USD respectively
But analysts noted that despite the attractive prices of the contracts on offer, most of the contracts in the Futures market remained largely undersubscribed due to overhanging liquidity crisis in the currency market.
There was USD7.5 million intervention sales by CBN to banks during the week. In the current week, CBN will resume selling USD to BDCs for the first time this year; hence, we expect moderation of the Naira/USD exchange rate
Analysts expect exchange rate at the interbank to remain stable this week as the CBN continues daily intervention. Meanwhile, plans by the CBN to resume dollar sales to BDC operators may offset some of the pressure on exchange rates at the parallel market.
With last week’s depreciation amidst major moves by Central Bank of Nigeria, CBN, to assuage Bureau de Change, BDC, operators with improved availability of foreign exchange resources, some market operators believe the latest depreciation may be speculative, expecting a reversal this week.
Weekly foreign exchange supply
However, dealers are not confident in the arrangements under the International Money Transfer Agency system which the apex bank has been working out for some months now.
They said they are yet to receive foreign exchange supply under the arrangement this year, a situation which may have worsened the liquidity crises in the foreign exchange market while heightening speculations.
This situation was coming at the backdrop of the reduction in the volume of weekly foreign exchange supply to the interbank market by the CBN previous week.
Gold Gained Ahead of Joe Biden Inauguration 2021
Gold price rose from one and a half month low on Tuesday ahead of President-elect Joe Biden’s inauguration on Wednesday.
The precious metal, largely regarded as a haven asset by investors, edged up by 0.2 percent to $1,844.52 per ounce on Tuesday, up from $1,802.61 on Monday.
He said, “The key factor appears to be the (U.S.) currency.”
As expected, a change in administration comes with the change in economic policies, especially taking into consideration the peculiarities of the present situation. In fact, even though Biden, Janet Yellen and the rest of the new cabinet are expected to go all out on additional stimulus with the support of Democrats controlled Houses, economic uncertainties with rising COVID-19 cases and slow vaccine distribution remained a huge concern.
Also, the effectiveness of the vaccines can not be ascertained until wider rollout.
Still, which policy would be halted or sustained by the incoming administration remained a concern that has forced many investors to once again flee other assets for Gold ahead of tomorrow’s inauguration.
Crude Oil Holds Steady Above $55 Per Barrel on Tuesday
Brent Crude oil, against which Nigerian crude oil is priced, rose from $54.46 per barrel on Monday to $55.27 per barrel as of 9:03 am Nigerian time on Tuesday.
Last week, Brent crude oil rose to 11 months high of $57.38 per barrel before pulling back on rising COVID-19 cases and lockdowns in key global economies like the United Kingdom, Euro-Area, China, etc.
While OPEC has left 2021 oil demand unchanged and President-elect Joe Biden has announced a $1.9 trillion stimulus package, experts are saying the rising number of new cases of COVID-19 amid poor vaccine distribution could drag on growth and demand for oil in 2021.
On Friday, Dan Yergin, vice-chairman at IHS Markit, said in addition to the stimulus package “There are two other things that are going with it … one is of course, vaccinations — in the sense that eventually this crisis is going to end, and maybe by the spring, lockdowns will be over.”
“The other thing is what Saudi Arabia did. This is the third time Saudi Arabia has made a sudden change in policy in less than a year, and this one was to announce (the) 1 million barrel a day cut — partly because they are worried about the impact of the surge in virus that’s occurring,” he said.
Also, the stimulus being injected into the United States economy could spur huge Shale production and disrupt OPEC and allies’ efforts at balancing the global oil market in 2021.
Crude Oil Pulled Back Despite Joe Biden Stimulus
Crude oil pulled back on Friday despite the $1.9 trillion stimulus package announced by U.S President-elect, Joe Biden.
Brent crude oil, against which Nigeria’s oil is priced, pulled back from $57.38 per barrel on Wednesday to $55.52 per barrel on Friday in spite of the huge stimulus package announced on Thursday.
On Thursday, OPEC, in its latest outlook for the year, said uncertainties remain high in 2021 with the number of COVID-19 new cases on the rise.
OPEC said, “Uncertainties remain high going forward with the main downside risks being issues related to COVID-19 containment measures and the impact of the pandemic on consumer behavior.”
“These will also include how many countries are adapting lockdown measures, and for how long. At the same time, quicker vaccination plans and a recovery in consumer confidence provide some upside optimism.”
Governments across Europe have announced tighter and longer coronavirus lockdowns, with vaccinations not expected to have a significant impact for the next few months.
“The complex remains in pause mode, a development that should not be surprising given the magnitude of the oil price gains that have been developing for some 2-1/2 months,” Jim Ritterbusch, president of Ritterbusch and Associates, said.
Still, OPEC left its crude oil projections unchanged for the year. The oil cartel expected global oil demand to increase by 5.9 million barrels per day year on year to an average of 95.9 million per day in 2020.
But also OPEC expects a recent rally and stimulus to boost U.S. Shale crude oil production in the year, a projection Investors King experts expect to hurt OPEC strategy in 2021.
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