- Forex Weekly Outlook Jan 30 – Feb 3
The US dollar was weighed upon by political uncertainty and weaker than expected GDP figure in the first week of the new administration. The economy grew by 1.9 percent in the final quarter of 2016, which was below the 2.1 percent forecast by analysts. The figures showed the US trade deficit widen as shipments of soybean that buoyed exports in the third quarter plunged, reducing net exports by 1.7 percent — the most since the second quarter of 2010.
But the continuous increase in household spending and surge in business-equipment spending for the first time in 5 quarters aided growth. While the value of all goods and services produced moderated to a 1.9 percent annualized rate, the economy remains strong, especially the industrial sector that saw Dow Jones closing above 20,000 points for the first time last week.
However, the uncertainty surrounding the series of changes being made by the new administration to existing policy has increased market volatility and risk exposure, making it hard to succinctly deduce market direction.
In the UK, the economy continued to differ Brexit doom and grew by 0.6 percent in the final quarter of 2016. More than the 0.5 percent forecast by economists. According to the report, manufacturing sector expanded 0.7 percent in the last quarter, bringing the 2016 total economic growth to 2 percent, down from 2.2 percent recorded a year ago. So far, the pound has lost 15 percent of its value since the June referendum and peaked at $1.2672 against the dollar on Thursday before closing at $1.2546.
In Australia, the consumer prices which measures inflation increased by 0.5 percent in the 4th quarter of 2016, which was below expectations of 0.7 percent. While on a yearly basis, inflation rate surged 1.5 percent, still below 1.6 percent predicted by analysts but up from 1.3 percent recorded in the previous quarter.
However, the Australian dollar continued to gain against the US dollar, despite the US dollar gaining against a basket of currencies. This is because investors are yet to make sense of Trump’s executive orders’ implications for both the US and global economies.
Overall, global uncertainty continued to weigh markets outlook amid changes in central banks’ policies. Therefore, it is imperative to pay attention to change in government policy and economic data from G-7 nations as they will form the bedrock of foreign exchange rate going forward.
Also, it should be noted that the U.K court has mandated Theresa May to entertain parliament vote on the final draft of the Brexit deal in March, this is a game changer as investors now have the opportunity to lobby for a better deal with the parliament. Hence, the surge in the pound.
The Euro single currency economic outlook remained uncertain ahead of brexit, even though the manufacturing index shows business activities are beginning to pick up. The region is still struggling with a low inflation rate and weak oversea orders.
While the pound, on the other hand, remains vibrant as both the economic data and Prime Minister Theresa May’s efforts in rescuing the nation from post-brexit doom is gradually manifesting on the economy and projected to sustain investment sentiment in 2017.
This week, I will be looking to sell EURGBP below the 0.8471 resistance levels. This is because the bearish candlestick formed three weeks ago (1/15/2017) will be treated as lower high following the October 2nd, 2016 bullish candlestick that retraced about 40 percent to close at 0.9001 after peaking at 0.9224. The first target will be 0.8303, and 0.8117 will be the second target.
The Euro area is yet to rebound from its weak manufacturing sector and low consumer prices. While the Canadian economy is basking in the favourable US sentiment towards its exports and decision of the new administration to exempt the nation from 20% border tax owing to the fact that the US has a trade surplus of $11.9 billion with Canada in 2016, a relationship regarded by the administration as mutual beneficiary.
This positive sentiment will further support Canada positive economic outlook after OPEC production and boost its weak manufacturing sector in 2017. In lieu of this, I will be looking to sell this pair below 1.4070 price levels for our December’s target of 1.3742.
Travellers to Access $4k , Businessmen $5K as CBN Boosts Forex Supplies
Nigerians travelling abroad can access a maximum amount of $4,000 foreign exchange from the banks following the Central Bank of Nigeria’s announcement to increase forex supplies.
Sources from some of the banks said those travelling on business trips could also access a maximum amount of $5,000 for each trip.
The CBN had said in a recent statement that it had concluded plans to increase the amount of foreign exchange allocated to banks to meet legitimate needs.
This followed the warning by the CBN Governor, Mr Godwin Emefiele, to Deposit Money Banks to desist from denying customers the opportunity to purchase foreign exchange.
The purposes to access forex included Personal Travel Allowance, Basic Travel Allowance, tuition fees, and medical payments as well as Small and Medium Enterprises transactions or for the repatriation of Foreign Direct Investment proceeds, the CBN had stated.
At a virtual Bankers’ Committee meeting last week, the bankers discussed how the CBN intended to assist with forex to ensure availability for the upcoming summer period and the return of students to school in September.
The CBN also said the BDCs would continue to have their weekly allocations.
The committee observed that the rates were going up.
It stated, “The CBN has said that all the banks must make available at all times and anyone who wants to buy BTA, PTA, medical fees, student school fees and all the eligible invisible purchases to ensure that Nigerians are not forced to go and queue in the parallel market.
“So what the Central Bank is doing is to encourage all banks to make sure that there is available forex at all times, and that his information should be communicated on all our platforms.
“We are asking our customers to come to the branches and for BTA, for example, present the required documents, which are basically your international passport, your visa, your valid ticket and fill up the form in the bank.
“And what we have been instructed to do is ensure that we don’t turn anybody back and that we should request from the Central Bank once we exhaust the forex that we have.
“The idea is to have a hitch-free summer period and the resumption for children to go back to school. The idea is to ensure there is less pressure on the forex and then the rates will come down.”
Speaking during the virtual meeting, the Group Managing Director, Access Bank, Herbert Wigwe, said, “I think again as part of the central bank’s role in terms of price stability and the need to support small and medium enterprises, there was a highlight of the need for banks to go and support SMEs who import small raw materials for them to set up their businesses.”
The Managing Director, Ecobank, Patrick Akinwuntan, said, “All banks are available to ensure forex need is met.”
Managing Director, Sterling Bank, Abubakar Suleiman, said the CBN had provided sufficient foreign exchange to meet the needs of all legitimate Nigerian travellers and therefore, the idea of going to any other market should not arise at all.
U.S Dollar Gained as Fed Shifts Interest Rates Hike from 2024 to 2023, Crypto Drops
The United States Dollar gained on Thursday after the Federal Reserve raised inflation expectations to 3.4 percent and moved the year it is expected to raise interest rates from 2024 to 2023.
Policymakers suggested that interest rates could be raised twice by late 2023 given “Summary of Economic Projections” (SEP) released on Wednesday.
The dollar index, which tracks the greenback against six major currencies, gained 0.63 percent to 91.103, its highest since May 6.
The jump was as a result of renewed interest in the American economy as growth is expected to hit 7 percent in 2021 despite the rising inflation. Similarly, economic conditions are projected to improve faster than initially predicted.
The Federal Reserve Chair Jerome Powell said “the economic conditions in the committee’s forward guidance will be met somewhat sooner than previously expected.”
“The interesting thing is that the Fed has gone beyond simply acknowledging that inflation is rising and that the U.S. economy has a lot of momentum, and it has essentially shifted to a much more hawkish stance in this set of projections,” said Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto.
Powell said the central bank will maintain its $120 billion monthly bond-buying program to continue to support the economy but also suggested the possibility of pulling back on quantitative easing used to keep rates low.
“I think we’re back to talking about a mild rally in the U.S. dollar and the data becoming very important over the summer period prior to Jackson Hole and September’s meeting,” said Simon Harvey, senior FX market analyst at Monex Europe.
Billions Flow Out of Crypto Market Ahead of Better US Economy
Investors are moving money in billions out of the crypto market, according to Whale Alert reports. On Thursday, 26,999,9990 USDT valued at $26,999,990 was transferred from Binance to an unknown wallet while another 19,999,995 USDT transferred from Bitfinex to an unknown wallet.
Investors moved 20,000,000 USDT to Bitfinex; 55,180 Ether worth $134,030,121 from an unknown wallet to another unknown wallet and 55,000 Ether estimated at $133,389,506 was also transferred to an unknown wallet in the early hours of Thursday.
5,000 Ether worth $12,168,082 and 1,000 Bitcoins worth $38,953,357 were transferred from an unknown wallet to Binance. To see the rest of the money being moved out of crypto space visit Whale Alert.
Cryptocurrency market capitalisation dipped by 5.03 percent in the last 24 hours but has lost $898 billion from $2.523 trillion it attained on Wednesday, May 12, 2021, to $1.625 trillion on Thursday, June 17, 2021.
The plunge in cryptocurrency was a result of improving global economic outlook, especially in the United States of America, the largest crypto investing nation.
The unregulated crypto space is largely treated as a haven asset to avert disaster during the global downturn. Meaning, an improvement in the global economy will generally impact cryptocurrency capital inflow and overall performance. Investors King expects cryptocurrency to extend its decline in the third quarter.
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.
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