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Forex Weekly Outlook October 16-20

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  • Forex Weekly Outlook October 16-20

The mixed U.S. economic data and political uncertainty continued to weigh on the U.S dollar. Even though activities in the manufacturing sector rose to a 13-year high in September and services sector expanded at the fastest pace in 12 years last month, the consumer prices rose just 0.5 percent in the month, below the 0.6 percent projected by experts. Suggesting that increased job creation in these sectors has failed to pressure prices enough to validate Federal Reserve’s price projection.

This is one of the reasons the U.S. dollar dipped against its counterparts on Friday and likely to continue this week after President Trump disavow Iran’s deal. However, the weak US dollar should deepen industrial production as seen in August and September, while Saudi Arabia’s decision to cut crude oil export by 560,000 barrels per day in November is expected to further boost gasoline prices and subsequently pressure headline inflation towards the Federal Reserve’s 2 percent target in the final quarter of 2017.

However, the underlying fundamental factors would be temporary in accordance with Federal Reserve’s minutes of September 19-20 that showed policymakers are unclear if factors subduing inflation are just temporary or persistent. Therefore, agreed that incoming data are imperative to rate decision.

Also, even though the odds of rate hike in December may increase with the rise in headline inflation figure, the US dollar may not respond proportionally for two reasons; December rates hike has already been priced in, two, growing uncertainty in the U.S. and President Trump’s inability to push through with tax cut just yet will weigh on the US dollar attractiveness.

Therefore, growing political uncertainties in the country and across the world remains a concern, especially with the whole Euro-area facing populist uprising amid stagnant Brexit negotiation.

This week, I will be looking at AUDJPY, and NZDJPY, NZDUSD, and AUDUSD from last week.

AUDJPY

The Australian economy is struggling with weak retail sales and growing household debt that has eroded consumer spending power. However, weak iron ore price, the largest Australian export product also weigh on the economic outlook but investors and businesses are more concern about the Reserve Bank of Australia’s decision to maintain current monetary policy against other nations cutting back on stimulus amid improved global growth.

Despite these headwinds, the Australian dollar remains resilient in strong demand after dropping below 88.17 two weeks ago. One, because of the rebound in China’s import to 18.7 percent in September. Two, the surge in the attractiveness of emerging currencies following the less than expected consumer prices and the president Donald Trump refusal to sign Iran’s deal bolstered Australian dollar attractiveness last week as investors are risk-averse.

Forex Weekly Outlook October 16-20

However, while the currency has been favoured by growing uncertainties and improved global economic outlook, the Aussie dollar remained overpriced as stated previously and expected to dip against strong currencies like the Japanese yen, backed by strong and growing economic fundamental.

Therefore, despite the Japanese snap election due on October 22, I don’t see the AUDJPY topping the 22-month high of 90.29 after the bearish pin bar established 4 weeks ago. This week, as long as price remains below the 90.32 resistance level, I am bearish on this pair and will look to sell below 88.17 for 86.34 targets.

Last Week Recap

Improved emerging markets’ outlook bolstered the attractiveness of emerging currencies last week. While I doubt these currencies can sustain current upsurge against the US dollar and Japanese Yen in the long term. I will be standing aside this week to better assess price action and price in Chinese inflation number and revised Japanese industrial production due on Monday.

Similarly, I will be staying away from the EURUSD because of the low volume of trade and surge in risk level due to the growing uncertainty.

NZDJPY

Forex Weekly Outlook October 16-20

This pair failed to break the ascending channel last week. However, with the New Zealand inconclusive election, I do not see NZDJPY sustaining current bullish momentum for long. Therefore, I will be standing aside this week to monitor price action but would be selling at the first sign of wane as long as price remains below 81.02 levels.

AUDUSD

Forex Weekly Outlook October 16-20

The weak US consumer prices aided the attractiveness of the Aussie dollar against the US dollar last week. This week, I will be assessing the response of the parliament and the rest of the world to President Donald Trump’s refusal to sign Iran’s deal on Friday and how this plus China’s consumer prices due on Monday will change AUDUSD outlook going forward. Again, I am bearish on this pair on a long-term as I believe Australian dollar is overpriced but the heightened uncertainty continued to weigh on that projection, hence, the reason  I am standing aside this week.

NZDUSD

Forex Weekly Outlook October 16-20

Similarly, the New Zealand currency surged on growing emerging markets attractiveness and weak US dollar. But while Chinese new credit control policy is projected to affect exporting partners like New Zealand, the currency remains resilient amid rising commodity prices. again, I believe the rebound is temporary and merely aided by the US uncertainty. Therefore, the reason I am bearish on this pair as long as price stays below 0.7214, but I would be standing aside this week to better monitor price action and sell at the first bearish continuation signal.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Naira

Nigeria Hits Historic High as Currency in Circulation Surges to N3.69 Trillion

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Nigeria’s currency in circulation surged to a historic high of N3.69 trillion, according to data released by the Central Bank of Nigeria (CBN).

This figure represents an increase of N43.07 billion or 1.18 percent from the total of N3.65 trillion reported in January 2024 and a 13.64 percent year-on-year rise from N3.25 trillion reported in February 2023.

Currency in circulation encompasses the physical cash, including paper notes and coins, actively used in transactions between consumers and businesses within the country.

The latest statistics indicate a considerable uptick in the availability of cash within the Nigerian economy.

The surge in currency supply comes amidst lingering concerns over a potential cash crunch following the monetary policy adjustments by the CBN, particularly the aggressive tightening stance of the Monetary Policy Committee (MPC).

Analysts attribute this spike to various factors, including the fear factor stemming from the cash crunch experienced in 2023 and lingering uncertainties surrounding the administration of physical currency.

Despite the surge in currency in circulation, Nigeria’s economic growth remains sluggish, with projections indicating growth rates of around 2.9 percent to 3.1 percent for 2024.

Also, inflation remains a significant concern, with the headline inflation rate climbing to 31.70 percent in February 2024 from 29.9 percent reported in January 2024, according to data from the National Bureau of Statistics (NBS).

The CBN’s proactive approach to monetary policy, including a historic increase in the monetary policy rate (MPR) to 24.75 percent, underscores the central bank’s commitment to addressing economic challenges and fostering stability amidst persistent pressures.

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Naira

Nigerian Naira Surges to N1,350 per Dollar in Parallel Market

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The Nigerian Naira has appreciated to N1,350 per dollar in the parallel market, a significant gain from its previous rate of N1,430 per dollar just a day earlier.

Similarly, in the Nigerian Foreign Exchange Market (NAFEM), the naira strengthened to N1,382.95 per dollar, indicating an upward trend across key forex segments.

Data from FMDQ revealed that the indicative exchange rate for NAFEM fell to N1,382.95 per dollar from N1,408.04 per dollar on the previous day, representing a gain of N25.09 for the naira.

This surge in the naira’s value has widened the margin between the parallel market rate and NAFEM to N32.95 per dollar from N21.96 per dollar previously.

Analysts attribute this impressive surge to recent foreign exchange reforms implemented by the Central Bank of Nigeria (CBN).

These reforms, including the consolidation of exchange rate windows and liberalization of the FX market, have contributed to bolstering the naira’s strength against the dollar.

The CBN’s proactive measures aim to promote stability, transparency, and liquidity in the foreign exchange market, fostering confidence among investors and strengthening the national currency.

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Forex

CBN Governor Reveals $2.4 Billion Forex Forwards Under Investigation

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Naira Exchange Rates - Investors King

Governor Yemi Cardoso of the Central Bank of Nigeria (CBN) disclosed that law enforcement agencies are currently investigating foreign exchange forwards valued at $2.4 billion.

This announcement came in the wake of the Monetary Policy Committee (MPC) meeting held in Abuja on Tuesday, March 26.

Governor Cardoso shed light on the meticulous forensic audit conducted on these transactions, which uncovered numerous discrepancies, rendering them ineligible for payment.

The CBN, while settling certain tranches of FX backlog, encountered transactions riddled with issues concerning their authenticity.

To address these concerns, Deloitte management consultants were enlisted to conduct a comprehensive forensic analysis spanning several months.

The audit revealed a multitude of irregularities, including allocations disbursed without corresponding requests, lack of proper documentation, and instances of outright illegality.

Cardoso emphasized the gravity of the situation, stating, “We refused to validate them because, apart from the fact that documentation was not satisfactory in many cases, they were outright illegal.”

He underscored the commitment of law enforcement agencies to investigate these transactions thoroughly.

Despite concerns about potential backlogs among stakeholders, Cardoso assured that the market remains open and transparent for addressing any outstanding contractual obligations.

The CBN has diligently verified and settled recognized backlogs of forward transactions.

This revelation comes at a critical juncture as Nigeria grapples with economic challenges, including inflationary pressures.

The MPC’s decision to raise the benchmark interest rate to 24.75 percent reflects efforts to stabilize prices and restore the purchasing power of the average Nigerian.

As investigations unfold and regulatory scrutiny intensifies, the CBN’s commitment to transparency and financial integrity will be closely monitored by stakeholders across the nation.

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