- Forex Weekly Outlook April 3-7
The US economy expanded more than previously estimated in the final quarter of 2016, growing at 2.1 percent annualized rated instead of the previously reported 1.9 percent. However, despite a 3.5 percent expansion rate recorded in the third quarter, the total growth in 2016 remains the worst performance since 2011 — plunging to 1.6 percent following a 2.6 percent growth rate recorded in 2015.
Nevertheless, consumer sentiment rose to 96.9 in March, signaling that Americans are less upbeat about the long-term economic outlook. But consumer spending rose less than predicted in February even with the surge in wage growth. Suggesting that surge in inflation (2.1%) may be affecting consumer spending.
Accordingly, Federal Open Market Committee are expected to raise rates further this year to moderate consumer prices and proposed fiscal stimulus by the new administration. This optimism continued to aid the US dollar’s attractiveness against other pairs and bolstered bond market outlook.
In the UK, Prime Minister Theresa May officially triggered article 50 of Lisbon Treaty on Wednesday and stated that refusal of the European Union to accept the terms of the Brexit will have security implications. Compelling the European Union President Donald Tusk to declare on Friday that defense and security won’t be bargaining chips in Brexit negotiations.
In Canada, the Canadian economy expanded by a healthy 0.6 percent in January from December, indicating first-quarter growth will be stronger than expected as the country gradually recovers from the shock of low oil prices. The Canadian dollar improved against the US dollar to 75.24 U.S. cents
Generally, the US economy remains strong and so is the U.S dollar. However, the uncertainty surrounding the economic outlook remains.
This week NZDUSD and AUDJPY top my list
The NZDUSD pair reversed 814 pips after dropping 2640 pips to 0.6195 in 2015. This reversal has carved out a wedge pattern not only to affirm that the temporary bullish trend is waning but also to ascertain bearish continuation.
Similarly, the aforementioned correlates with our February projection that higher exchange rate would affect New Zealand consumer goods as it would have pushed the cost of goods higher and subsequently reduced consumer spending. However, inspite of this bearish view, this pair has traded moderately high against the Reserve Bank of New Zealand call for lower exchange rates.
But with the renewed US dollar’s attractiveness following policy-makers comments on three more rate hikes in 2017. I am expecting this pair to gain bearish momentum as a continuation of the long-term downward trend. A break below the wedge pattern should expose our first support of 0.6892 and sustained break of that level should give us 0.6716 targets.
Considering Australia’s economic outlook and declining trade surplus that saw trade balance unexpectedly narrowed 61 percent to AUD 1.30 billion January from a downwardly revised AUD 3.33 billion surplus in December, 84.97 exchange rate is high and would hurt consumer spending further if not check. Also, I don’t see the Aussie breaking its 15-month high after dropping below 86.34 support turned resistance.
Technically, this pair has given 435 pips since peaking at 88.16 in February, its 15-month high but after plunging 3041 pips for the past 2 years. I will be treating the new upsurge as a temporary reversal and expect a break below upward trend to open up 82.70 support levels, while a sustained break should expose our target at 80.82 as shown above.
Last week positive economic growth (GDP) data aided the Loonie to recover mildly against the Japanese Yen. However, with the price below 85.86, 20-moving average, I remain bearish on this pair and expect a sustained break of 83.11 to open up 80.27 targets as more sellers jump on it. Hence, I will be looking to sell bellow 83.11 support levels.
Likewise, I remain bearish on this pair as long as 78.83 resistance holds and will be looking to add to my position.
Again CBN Devalues Naira by N6 Ahead of World Bank’s $1.5bn Loan Request
The Central Bank of Nigeria (CBN) has once again devalued the Nigerian Naira by N6 to the United States Dollar, making it the third time the apex bank will adjust the Naira exchange rate this year.
The devaluation brings the CBN closer to actualising foreign exchange unification demanded by the International Monetary Fund (IMF) in April before the $3.4 billion loan was approved.
This same condition was enforced by the World Bank as a prerequisite for approval of $1.5 billion loan request submitted by the Federal Government. The loan the Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, said she was positive it would be approved by the multilateral institution in the next meeting given that the Federal Government has met all the conditions for the said loan.
24 hours later, the apex bank devalued the Naira official rate by N6 from N379/US$ to N385/US$. While the International Money Transfer Service Operators (IMTOs), all authorised dealers, bureau de change operators and service providers were asked to add N6 across all rates.
The rate for IMTOs against the US dollar has now moved from N382 to N388. Meaning banks will now sell dollar to the CBN at N389, up from the previous N383 to us dollar.
Again, the Central Bank sale of dollar to the bureau de change operators was pegged at N390 to dollar, against the old N384 to US dollar.
The apex bank, therefore, directed the BDCs to sell at not more than N392 per dollar to end-users. The old rate was N386 to a US dollar.
The CBN circlar reads in part, “Weekly Exchange Rate For Disbursement of Proceeds of International Money Transfer Service Operators’ pegged IMTOs sale of dollar to banks at N388 to dollar; banks sale of dollar to CBN at N389 to dollar and CBN sale of dollar to BDCs at N390 to dollar. The BDCs are now expected to sale to end-users at not more than N392 to dollar and each BDC is entitled to buy $10,000 weekly”.
More Problem for CBN as Naira Approaches N500/US$ at the Black Market
Naira plunged against the United States Dollar to a record low of N495 at the black market on Thursday despite the Central Bank of Nigeria saying it has enough financial means to meet forex demands.
The Naira declined by N12 from N483 it exchanged on Monday amid persistent scarcity and high demands by importers and businesses looking to offset COVID-19 losses with the usual December high demand sales.
Godwin Emefiele, the Governor of the Central Bank of Nigeria (CBN), on Tuesday blamed the wide foreign exchange rate at the black market on speculators and hoarders looking for personal gain at the expense of the nation.
He went on to caution experts using black market rates to analyse the local currency performance to stop and claimed that section of the forex only accounts for 5 percent of the nation’s total foreign exchange transactions.
While that might be true, it is also true that majority of manufacturers and businesses have turned to the black market for their forex needs in recent months, especially after it became obvious that the apex bank does not have enough liquidity to service the economy.
The nation’s foreign reserves has been battered by the weak oil prices and the continuous production cut by OPEC and allies to artificially support low prices. Nigeria’s foreign reserves is presently hovering between $35 billion and $36 billion after plunging from $45 billion attained in June 2019, according to the latest data from the Central Bank of Nigeria.
Against the British Pound, the Nigerian Naira depreciated by N15 to N635 from N620 it exchanged on Monday. Another indication of chronic forex scarcity as the local currency also plunged to N580 against the European common currency, the Euro.
The wide forex is expected to further weigh on the nation’s inflation rate and consumer spending this December.
On Tuesday, the apex bank left the interest rate unchanged at 11.5 percent and attributed the rising inflation rate to structural policies, the recent #EndSARS protest and a surging fuel price.
Naira Gains N1 to N483 Against US Dollar as CBN Warned Speculators of Impending Doom
The Central Bank of Nigeria on Tuesday warned speculators and hoarders of the United States Dollar against creating artificial forex scarcity for personal gain.
Godwin Emefiele, the Governor of the Central Bank of Nigeria, said black market forex rates does not reflect the economic reality of the Nigerian Naira as that section of the forex is tainted with bribes and individuals looking to profit at the expense of the nation.
“We do not agree that the determining factor for our currency should be based on a market that is tainted, where people go to offer bribes,” he stated during a virtual monetary policy committee briefing in Abuja.
The Nigerian Naira gained N1 against the United States dollar to trade at N483 at the parallel market also known as the black market, up from N484 it traded on Monday.
Emefiele said “The black market is illegal where people do not provide documentation to support transactions. It is unfortunate and unfair for analysts to say Nigeria’s exchange rate is at 480 per dollar.”
The Association of Bureau De Change Operators of Nigeria (ABCON) agreed with the central bank, saying speculators and currency hoarders are responsible for the wide forex rates. The association warned that speculators are going to lose money given that the apex bank has foreign reserves of $36 billion to support the local currency and meet forex demands.
The apex bank left the interest rate unchanged at 11.5 percent to further stimulate growth in the real sector and speed up the recovery process with cheaper loans. Other ratios were left unchanged as well.
Speaking on the rising inflation rate, Godwin Emefiele attributed the 14.23 percent increase in consumer prices to the rising pump price, the recent #EndSARS protest and structural policies.
Therefore, it looks like the apex bank will damn rising inflation for the first time to focus on economic productivity, new job creation and general growth.
The Naira CBN official rate remains $379 to a United States Dollar while it exchanged at N385 on the Investors and Exporters Forex Window on Tuesday.
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