Forex

Aussie Dollar’s Rollercoaster Shows Dilemma Facing Central Banks

Published

7 years ago

July 21, 2017

Aussie Dollar’s Rollercoaster Shows Dilemma Facing Central Banks

Australia’s central bank whipsawed the nation’s currency this week, underscoring just how difficult policy makers are finding it to even discuss an end to ongoing stimulus.

Minutes of the Reserve Bank of Australia’s July meeting released Tuesday included a discussion of the level of the neutral interest rate, which was estimated at about 3.5 percent — a long way from the current 1.50 percent. Traders interpreted the discussion as a signal that rate hikes were on the way and sent the Australian dollar soaring, effectively tightening conditions in the economy.

Just three days later, the RBA’s No. 2 official used a speech to hammer home that policy makers were not signalling tighter policy. The Aussie promptly tumbled.

“Debelle has clearly taken the opportunity to hose down interest rate expectations for a rate rise and take some of the heat out of the currency,” Kristina Clifton, an economist at Commonwealth Bank of Australia, wrote in a note.

The big swings in the Aussie dollar are a vivid illustration of just how sensitive markets have become to any hint of a shift in central bank communication after years of ultra loose monetary policy. European Central Bank President Mario Draghi has struggled to contain expectations for any winding back of stimulus and the Bank of England has also whipsawed markets with mixed messages on whether or not it plans to tighten.

In the case of Australia, Debelle was emphatic in his message that traders had misread the central bank’s minutes by fueling the Aussie’s biggest one-day gain in four months. The currency and three-year bond yields reached the highest since 2015.

Instead, he said because Australia’s cash rate didn’t fall as low as those of global counterparts, the RBA doesn’t automatically have to follow suit now that peers have begun tightening.

A stronger currency is the last thing policy makers in Sydney want as they seek to boost the nation’s services and exports sectors in the wake of a cooling mining boom. The average value of the Australian dollar against a basket of other currencies, known as the trade-weighted index, has climbed about 6 percent since the start of June.

It takes just a 5 percent increase to inflict the same economic impact as a quarter-point hike in the Reserve Bank of Australia’s cash rate, according to Paul Bloxham, chief economist for Australia at HSBC Holdings Plc, who previously worked at the central bank.

Debelle’s comments unwound most of the post-minute gains. Bonds were set to end the week little changed, while the Aussie was up 1 percent against the greenback and was heading for declines on the week versus six of the 10 major developed currencies.

The experience in Australia is a reminder of how sensitive markets are to central bank speak, said Chua Hak Bin, a Singapore-based senior economist with Maybank Kim Eng Research.

“Given exceptionally low current interest rates in most countries, any signals about potential policy tightening will lead to large currency swings,” he said.

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Samed Olukoya

Is the CEO and Founder of Investors King Limited. He is a seasoned foreign exchange research analyst and a published author on Yahoo Finance, Business Insider, Nasdaq, Entrepreneur.com, Investorplace, and other prominent platforms. With over two decades of experience in global financial markets, Olukoya is well-recognized in the industry.

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Naira

Naira Appreciates on US Dollar in Official, Black Markets Amid Reserves Boost

Published

10 hours ago

October 26, 2024

Iyanuoluwa Martins

The Naira appreciated against the US Dollar at both the official and black market, easing worries about the local currency on Friday, October 25

The Naira pulled a marginal gain of 0.07 percent in the Nigerian Autonomous Foreign Exchange Market (NAFEX) as the local currency extended its position from the previous session.

Naira gained N1.20 to close the session at N1,600.00/$1 at the official window, according to data obtained from the FMDQ Securities Exchange.

Turnover published on the FMDQ Group website stood at $284.93 million indicating that the session’s turnover slid by 23.4 percent to $230.99 million published the previous day.

This happened as the latest data from the Central Bank of Nigeria (CBN) revealed that the gross balance in the external reserves climbed to $39.20 billion this week.

According to analysts, this is the highest level seen in the last 28 months as historic records showed that Nigeria’s gross external reserves was last seen at $39.219 billion in July 2022.

In the black market, the Naira gained N7.99 against the greenback to close at N1,698.62 to the US Dollar compared to N1,706.61/$1 it closed on Wednesday.

Equally, the domestic currency also witnessed gains against the British currency and the Euro in the week’s final session.

On the Pound Sterling, the local currency made an appreciation of N7.77 to wrap the session at N2,132.29/£1 from N2,140/£1 that it sold at the previous session and against the Euro, the Nigerian currency closed at N1,768.18/€1 versus N1,780.16/€1, indicating an N11.98 appreciation.

The local currency also rose in value against the British currency in the black market as it rose by N8.02 to sell at N2,204.15/£1 compared with the preceding session’s N2,212.17/£1 and followed the same pattern against the Euro as it appreciated N3.74 to quote at N1,840.34/€1 versus the previous day’s rate of N1,844.08/€1.

The local currency halted recent drops as it gained N2.77 to close at N1,235.06 per Canadian Dollar, compared to Thursday’s N1,237.83 per CAD.

Naira

Naira Strengthens to N1,601/$1 at Official Market, Rises 3.2% on Dollar

Published

1 day ago

October 25, 2024

Iyanuoluwa Martins

The Naira appreciated 3.2 percent to N1,601.20 against the US Dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEX).

The domestic currency gained N52.89 on the greenback versus N1,654.09/$1, which it closed in the previous session on Wednesday.

Data showed a rise in supply as the turnover published on the FMDQ Group website stood at $230.99 million indicating that the session’s turnover jumped by 69 percent, indicating a rise of $94.31 million compared to $136.68 million that was published in the last trading session.

Equally, the Naira strengthened its value against the Pound Sterling in the official market by N7.16 to sell at N2,140.06/£1 compared with the preceding session’s N2,147.22/£1.

It followed the same route against the Euro as it appreciated N9.77 to quote at N1,780.16/€1 versus midweek’s rate of N1,789.93/€1.

Meanwhile, in the black market, the Naira lost 18 Kobo or 0.01 percent against the greenback to close at N1,706.61 to the US Dollar compared to N1,706.43/$1 it closed on Wednesday.

However, the local currency rose in value against the British currency in the black market as it rose by 20 Kobo to sell at N2,212.17/£1 compared with the preceding session’s N2,212.37/£1 and followed the same pattern against the Euro as it appreciated 71 Kobo to quote at N1,844.08/€1 versus the previous day’s rate of N1,844.79/€1.

Meanwhile, the local currency further depreciated for the fourth straight day as it lost N4.82 to close at N1,237.83 per Canadian Dollar, compared to Wednesday’s N1,233.01 per CAD.

The development contradicts an analysis by the International Monetary Fund (IMF) which reported that the Nigerian Naira is stabilising due to interest rate hikes and the Central Bank of Nigeria’s (CBN) clearance of foreign exchange backlogs.

“In Nigeria, rate hikes and clearing overdue domestic central bank foreign exchange obligations have helped the naira show more signs of stability,” stated the IMF in its global financial stability report.

Naira

CBN Dismisses Deadline Rumors: Old Naira Notes to Remain Legal Tender Indefinitely

Published

2 days ago

October 25, 2024

Samed Olukoya

Naira to Dollar Exchange- Investors King Rate - Investors King

The Central Bank of Nigeria (CBN) has said there is no deadline for the circulation of old naira notes as widely reported in some media on Thursday.

In a press release obtained by Investors King, the apex bank said old naira notes, N200, N500 and N1,000 shall be legal tender on December 31, 2024.

The CBN said “The attention of the Central Bank of Nigeria has been drawn to discussions at different fora suggesting that the old series of the N200, N500, and N1,000 banknotes shall cease to be legal tender on December 31, 2024.

“We wish to state categorically that such claims are false and calculated to disrupt the country’s payment system.”

“For the avoidance of doubt, the order of the Supreme Court of Nigeria on Wednesday, November 29, 2023, granting the prayer of the Attorney-General of the Federation and Minister of Justice to extend the use of old Naira banknotes ad infinitum, subsists,” the statement said.

The CBN in the statement reiterated that both the old and new banknotes must remain in circulation.

It said: “Similarly, the CBN’s directive to all its branches to continue to issue and accept all denominations of Nigerian banknotes, old and re-designed, to and from deposit money banks remains in force.”

It said: “All banknotes issued by the Central Bank of Nigeria will continue to remain legal tender indefinitely.”