- Forex Weekly Outlook May 8-12
The US dollar gained against currencies of emerging economies last week after data showed the US economy added more jobs than projected. The economy which added 211,000 jobs in April, improved its unemployment rate to 4.4 percent, the lowest pre-recession.
However, the wage remains slow, rising just 0.3 percent in April to 2.5 percent year-on-year. While, a senior White House Adviser, Gary Cohn, has said the administration would like to bring back manufacturing and service jobs that pay high. It is uncertain how the administration intends to slowdown consumer prices and at the same time sustain growth with unemployment already at its lowest rate since before the financial crisis.
Likewise, further fiscal boost is expected to prompt the Federal Reserve to raise borrowing cost faster than previously anticipated. If that happens, it could slow down Trump’s job creation and growth plans.
In Canada, new job creation dropped significantly in April to 3,200 from 19,400 created in March. This is far less than the 10,000 projected by economists. Also, the pace of annual wage rate increases dropped to 0.7 percent April, making it the lowest since the 1990s.
Although, the unemployment rate improved to 6.5 percent in the same month, the report showed there were about 45,500 workers that left the labor force in the same period. Half of whom were youth.
While the surge in commodity prices and business confidence in the US, Canada’s largest trading partner, has aided economic growth in Canada. The weak economic data could be a one-time thing, especially with the French-election going on. However, a positive win for Macron will further boost growing Canada’s economy as the trade pact signed with European Union a month earlier will bolster economic outlook going forward.
OPEC, last week global oil prices plunged to 5-months low following a report that hedge and money managers have started cutting their bullish positions as most analysts believe rising U.S. oil production would hinder OPEC strategy at curbing prices from reaching $45 a barrel. While, experts have said OPEC need to do more than the 1.8 million barrels a day it cut last year and extend production cut at least for another 6 months, it is uncertain if Libya and Nigeria that were previously exempted but has upped production now would be included.
Therefore, the uncertainty surrounding OPEC policy and surge in the U.S. oil production will continue to weigh on currencies of commodity-dependent economies.
In the UK, the manufacturing sector surprisingly rose more than expected in April, expanding from 54.2 in March to 57.3. According to the IHS Markit’s report, growth in new orders and exports also gathered space, however, there were concerns that rising inflation rate and the surge in the cost of imported goods would impact retail sales and job creation in the sector.
Overall, the US dollar remains strong, while the French election has offered a new support line for the Euro single currency—especially after Brexit. However, drop in commodity prices continue to weigh on emerging currencies and expected to continue until OPEC reach an accord to moderate price.
This week, I will be looking at USDJPY and NZDCAD pairs.
After the Bank of Japan lowered its inflation forecast last month. The Japanese yen dipped against the US dollar, losing over 300 pips. But with the U.S. labour market adding more jobs than projected and the Trump tax policy expected to increase consumer prices faster than anticipated, the Federal Reserve will likely raise rates soon. Hence, the reason the U.S. dollar is rising against the yen.
Technically, this pair closed as a bullish pin bar last week. Suggesting that the pair may cross the 113 resistance levels, above the descending channel. While, further bullish run of this pair depends on market’s perception of the U.S. economic policy. A sustained gain above the channel will open up 114.43 targets.
However, failure to sustainably break 113 resistance levels, would attract sellers below the channel and open up the 111.81 support levels, then 110.13 support.
First, currencies of emerging economies are affected by the drop in prices of global commodities and positive US economic data. Second, the Canadian economy of late has started reacting to US economy and seems to be directly proportional relationship wise. Therefore, with the US economy boosted by positive economy data and possibility of the Fed raising rate three times this year, the Canada’s manufacturing sector remains viable.
Last month, I mentioned this pair sell potential. But after the US labour market (NFP) disappointed in March the pair rebounded before closing as a bearish pin bar last week. This week, I will be looking to sell this pair below 0.9382 support levels with 0.9298 support as the first target, I will expect a sustained break to open up 0.9108 as explained last month.
Naira Exchange Rates; Monday, June 21, 2021
The Nigerian Naira continues its decline against global counterparts after gaining on the back of the Central Bank of Nigeria’s proposed increase in foreign exchange supply to all forex operators across the country.
Naira gained on the parallel market to exchange at N493 against the United States Dollar on Tuesday 15, June 2021 before dropping to N497 on Wednesday 16, June 2021.
The local currency plunged as low as N502 to a United States Dollar on the parallel market before the CBN announced its plans to up liquidity in an effort to ease scarcity and speed up business activities in the largely import-dependent economy. See the Naira exchange rates across various sections of foreign exchange markets.
Naira Black Market Exchange Rates
Morning * Midday** Evening *** Final Rates
Bureau De Change Naira Rates
Central Bank of Nigeria’s Official Naira Rates
|6/21/2021||SOUTH AFRICAN RAND||28.7174||28.7525||28.7876|
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.
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