- Forex Weekly Outlook April 10-14
The US economy added fewer jobs in March than projected, adding just 98,000 people to the payroll but the unemployment rate improved to 10 years low of 4.5 percent from 4.7 percent recorded in February. While, the figure is disappointing and a lot of analysts have predicted possible change in the Federal Open Market Committee stand, there are other fundamental factors that says otherwise. For instance, wage growth was steady at 2.7 percent year-on-year, while the unemployment claims declined to a 5-week low of 234,000. Perhaps this explained why the U.S dollar gained against all its counterparts on Friday after the report was made public. Again, global uncertainty after the Syria attack continued to aid haven assets and has also boosted the Japanese yen against its counterparts.
On oil, crude oil prices rallied on Friday after the US launched a missile strike against Syria, sparking fears that an escalation of the conflict in the crude-rich Middle East could disrupt supplies and further aid OPEC strategy. However, Fitch Ratings in its latest report forecast crude oil prices would average $52.50 per barrel in 2017. This is $7.4 per barrel higher than $45.1 per barrel recorded in 2016.
Also, crude oil experts and analysts expect the surge in the US oil production to continue disrupting OPEC strategy until both the OPEC and non-OPEC member states reached another consensus on production cut later in the year.
In Canada, the labour market added 19,600 jobs in March but the rise in the number of people looking for a job increased the unemployment rate from 6.6 percent to 6.7 percent in March. Canada has so far created a total of 82,600 jobs in the first three months of the year. This was after weak manufacturing sector plunged job creation in 2016 and impact exports amid global oil glut.
However, the manufacturing sector has expanded from 2016 low to 55.5 in March after recording a 54.7 in February. Also, the manufacturing employment rose by 24,400 in March, making it the highest one-month increase since August 2002. Therefore, businesses and investors are projecting continuous gain in the labour market—especially with the newly signed Canada-EU Comprehensive Economic and Trade Agreement expected to add at least $25 billion a year to the economy.
In the UK, the services sector rose to 55 in March, pushing businesses to raise their prices at the quickest pace in over 8 years. Experts believed it’s going to be a tough year for consumers following the report that both the manufacturing and construction sectors shrank in February. This further added to signs that the economy is losing momentum.
Last week, the Governor of the Bank of England Mark Carney urged banks to get contingency plans for all potential Brexit outcomes. Signaling increase uncertainty and possible recession, especially with both consumer spending and housing price slowdown with demands.
Generally, the US economy remains strong with its uncertainty, while Canada’s economy is gradually improving with growing global economic outlook. Both the UK and the Euro-area remains uncertain ahead of Brexit.
This week I will be reviewing past analysis in relation to current happenings.
In a sequel to my analysis three weeks ago, this pair has dropped 222 pips but yet to hit our first target at 134.90 support levels. But with both the construction and manufacturing sectors shrinking and housing price growth plunging to a 4-month low. I remain bearish on this pair as long as price remains below 141.47, I will expect a sustained break to expose 129.85 targets.
Last week, this pair topped our list and has since plunged by 163 pips to close at around 83.34, which was below the ascending line called temporary reversal. Therefore, this week I expect the current surge in the yen attractiveness and Aussie weak economic outlook ahead of surging household debt and bubble housing sector to further aid bearish move of this pair towards our last week target of 80.82.
Since I mentioned this pair sell potential three weeks ago, it has failed to sustain its bearish move. Even after giving us about 133 pips and hitting our first target. However, due to the positive Canada’s economic outlook and growing manufacturing sector that has continued to support job creation. I will step aside this week to better assess the pair in relation to series of economic data due this week.
This pair has plunged 71 pips since last week but far from our target of 0.6716. Therefore, as long as price remains below 0.7071 I am bearish on this pair and will be looking to add to my sell position below 0.6893 support levels for 0.6716 targets.
CBN Amends Forex Receipt as Naira Hits Record Low
In a bid to simplify and finally liberalize the receipt of diaspora remittances, the Central Bank of Nigeria (CBN) has amended its receipt procedures to allow beneficiaries of diaspora remittances receive such inflows in foreign currency (US Dollars).
The apex bank stated in a circular signed by Dr. O.S. Nnaji, Director Trade and Exchange Department, CBN.
In the circular, recipients of remittances can now receive funds in either foreign currency cash (US Dollars) or into their ordinary domiciliary account.
While the International Money Transfer Operators (IMTOs) will henceforth receive diaspora remittances in foreign currency through the designated bank of their choice.
The CBN plans to ease forex scarcity, speed up the recovery process and checkmate the activities of speculators and hoarders at the black by injecting diaspora remittances estimated at about $20 billion per year into the real economy.
This is expected to not just improve business activities but also moderate foreign exchange rate from the current N500/US$ and move the central bank a step closer to unifying the nation’s foreign exchange rates.
The circular partly reads “In an effort to liberalize, simplify and improve the receipt and administration of diaspora remittances into Nigeria, the Central Bank of Nigeria (CBN) wishes to announce as follows;
“Beneficiaries of Diaspora Remittances through International Money Transfer Operators (IMTOs) shall henceforth receive such inflows in foreign currency (US Dollars) or into their ordinary domiciliary account. Such recipients of remittances may have the option of receiving these funds in foreign currency cash (US Dollars) or into their ordinary domiciliary account.”
Naira Devaluation Pushed Exchange Rate to N500/US$ at Black Market
Naira to United States Dollar exchange rate plunged to N500 on Monday after the Central Bank of Nigeria (CBN) devalued the Naira by N6 on Friday amid growing scarcity.
At the current rate, the local currency has lost N140 per US dollar when compared with N360 it was sold in the same month of 2019 and N5 compared to N495 it exchanged on Friday.
In an effort to ease pressure on the nation’s foreign reserves and unify foreign exchange rates in line with the International Monetary Fund and the World Bank’s requirement for loans, the CBN devalued the official exchange rate by N6 from N379/US$ to N385/US$ and directed bureau de change operators to sell at N392/US$, up from N386/US$.
However, with importers and businesses looking to meet the usual high demand for goods in December pushing demand for the United States dollar off the roof, Naira’s value has continued to plummet despite efforts by the CBN to prop up its value.
Against the British Pound, the Naira declined to N650, down from N620 it exchanged last week. This depreciation continues against the Euro common currency as the local currency declined to N585.
Lack of liquidity due to the weak foreign reserves, low oil prices and weak demand for the commodity amid production cuts by OPEC and allies is hurting CBN’s ability to effectively intervene at the nation’s foreign exchange markets.
The apex bank usually sells forex to dealers to ease scarcity and facilitate trades. However, lack of foreign revenue generation has forced the CBN to reduce its weekly forex sales to $10,000 per bureau de change operator despite reopening of the economy pushing demand for forex further up.
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”.
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