- Dollar Pauses Near Six-month Top Ahead of Big Economic Indicators
Major currencies held around recent ranges on Monday thanks to a lull in China-U.S. trade skirmishing and as investors await key data from the world’s two biggest economies to determine whether global growth is running out of puff.
The dollar paused at 112.39 yen, not far from a six-month top of 112.79 set on Friday.
The index that tracks the dollar against six other major the currencies was barely changed at 94.750.
The dollar index went as high as 95.241 last week but quickly reversed gains after latest trade figures from China suggested the threat of tariffs had not had a significant impact as yet.
Worries about the economic hit to China’s exports from stiff U.S. tariffs had sent the yuan crashing against the dollar in offshore markets. It was last at 6.7050 from an 11-month trough of 6.7326 touched on July 3.
Traders are now looking to second-quarter gross domestic product (GDP) data from China and June retail sales from the United States.
“Our economists think China’s second-quarter GDP and June activity data released today will hold up better,” JPMorgan analysts said in a note.
Analysts polled by Reuters expect the Chinese economy to expand an annual 6.7 percent from 6.8 percent a year ago.
“U.S. June retail sales and industrial production are also released today and tomorrow, and together with the Chinese data should provide reassurance that global growth remains resilient for now,” the analysts added.
“After sustained derating, and with second-quarter earnings another potential upside catalyst, the scene is set for very bearish current sentiment to improve. That could allow a sustained rally until we near the next round of escalation of trade tensions towards the end of August.”
U.S. President Donald Trump’s summit with his Russian counterpart in Helsinki later this week will also be closely watched.
Federal Reserve chief Jerome Powell will make a semiannual appearance before Congress later this week. Ahead of the meeting, the central bank released its accompanying policy report which showed U.S. economic growth and the Fed expecting to keep raising rates gradually.
The U.S. economy, which is on its second longest expansion on record, has not yet suffered from the ongoing trade row with China.
Elsewhere, the euro was subdued, but held above a nine-day trough of $1.1610 touched last week. It was last down 0.1 percent at 1.1677.
The pound was a shade lower at $1.1322 from last week’s low of $1.3101.
The tone for the two currencies will be set by eurozone inflation data this week and ongoing Brexit discussions with British Prime Minister Theresa May battling for her political survival.
On Monday, British lawmakers vote on amendments to legislation on the government’s post-Brexit customs regime. Leading eurosceptics are set to vote in favour of amendments that May opposes and back their own proposals to toughen up her exit plan.
While May is not expected to be defeated on the amendments, a high number of votes in favour of altering the customs bill by members of her party could further undermine her negotiating strategy.
Naira Slides Against US Dollar as CBN Devalues Naira
Naira Remains Pressure Against US Dollar as CBN Devalues Naira by 5.54%
The Naira remained at a record low against the United States dollar on the black market amid broadly expected devaluation announcement from the central bank.
The Naira was exchanged at N461 to a US dollar on the black market on Tuesday and early morning of Wednesday. Its lowest in almost three years.
This decline continues against the British Pound as the local currency traded at N558, depreciated by N3 from the N555 it traded during the weekend.
Against the Euro common currency, the Naira opened the day from N504, representing N2 depreciation from the N502 it was exchanged on Tuesday.
On the Investors and Exporters’ Forex Window, the local currency remained flat on Tuesday at N386.50 to a United States dollar. However, it opened at N387.32 on Wednesday and quickly hits N391.35 before pulling back at around 2:18 pm Nigerian time.
Accordingly, investors traded a total turnover of $103.37 million during the trading hours of Tuesday, according to the FMDQ Group.
The latest data on the FMDQ Group website shows that the Central Bank of Nigeria (CBN) official exchange rate was moved by 5.54 percent from N361 per US dollar to N381. This further validated the recent rumour that the International Monetary Fund (IMF) was forcing the Federal Government to abide by one of the main conditions of the $3.4 billion loan procured in April before it can access the $1.5 billion request presently before the Fund.
The IMF had requested for a unified foreign exchange rate across the market and demanded the apex bank allow market forces to dictate forex rates.
Therefore, despite the Federal Government reluctant to adjust the nation’s foreign exchange, the weak foreign reserves amid rising demand for US dollars by foreign investors looking to abandon the economy has compelled the apex bank to move its official exchange rate from N360 to N380 per US dollar to investors and exporters.
CBN Devalues Naira Again, Official Rate Now N381/$ on the I&E Forex Window
CBN Devalues Naira by 5.54% Against the US Dollar
The Central Bank of Nigeria (CBN) has devalued the Nigerian Naira once again, according to the available data on the FMDQ Group.
The apex bank devalued the local currency by 5.54 percent from N361 to N381 against the United States dollar, making it the second time in the last six months that the Naira would be devalued to commodate the change in economic fundamentals and the nation’s dwindling revenue generation.
The apex bank first devalued the Naira by 15 percent in March following more than 60 percent decline in global oil prices and substantial depreciation in the nation’s foreign reserves due to COVID-19 disruption.
This coupled with Nigeria’s weak fiscal buffer weighed on the nation’s economic outlook as experts, investors and businesses immediately started projecting that at some point the apex bank would be forced to devalue the local currency again.
However, despite the central bank calling them speculators and hoarders with one motive, to profit from the nation’s economic situation. They insisted that with crude oil projected to remain between $35 to $45 per barrel through 2021 and foreign reserves already weak at $36.151 billion in a nation where over 90 percent of what its citizen consumes are imported, the apex bank will lose its ability to intervene at the nation’s foreign exchange, especially with foreign investors looking to move out about $5 billion.
While the central bank has not updated the quote on its official website from N360 to N380 as shown below, it has started selling to investors and exporters at N381, up from the old N361.
Again, this explained why the Naira-USD exchange rate slid to N461 on the black market in the last two weeks and remained between N460-N462 ever since.
CBN Starts Using N380/$ Official Rate, Expects to Make it Official Soon
CBN Moves Official Exchange Rate to N380 Per US Dollar
The Central Bank of Nigeria (CBN) has started using N380 as its official exchange rate for the United States dollar, according to a BusinessDay report.
The report noted that the apex bank recently disbursed the Federal Government’s monthly allocation to the three tiers of government using the new forex rate. Therefore, resulting in over N70 billion extra payment.
While the apex bank is yet to make an official announcement and still have the N360 exchange rate stated on its website as the nation official rate, an anonymous senior official of the central bank interviewed by BusinessDay said “yes, it is aimed at moving the rate closer to that of the Investors and Exporters (I&E) window, which traded at N386/$1 yesterday.
“From time to time, adjustment would continue to happen, either upward or downward in line with market fundamentals. Certainly, no single rate can be achieved, but we would keep moving towards I&E rate.”
It would be recalled that Godwin Emefiele, the Governor, CBN, about ten days ago told a group of foreign investors that the apex bank is working towards achieving a single foreign exchange rate around the Nigerian Autonomous Foreign Exchange Market (NAFEX)/Investors and Exporters’ Forex window.
The CBN governor had stated that “what we mean by exchange rate unification is moving towards the NAFEX. NAFEX is our dominant market for the purchase and sale of forex and it is a free market where everybody is free to sell their dollars and those who want to buy are free to buy dollars.
“That means that whether you are a businessman, a bank, CBN, and you have dollars, you can bring it to the market to sell and if you want to buy dollars, you can come to the market.
“Like some of you must have seen, three years before 2019, we saw a relatively stable forex market because the NAFEX rate and even the rate at which the central bank transacts business outside the NAFEX were substantially close to each other. So, the CBN will continue to pursue unification around the NAFEX.”
Meanwhile, the Nigerian Naira traded at a record low of N462 against the US dollar on the black market during the weekend.
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