- Forex Weekly Outlook June 19-23
Despite the weak job data and inflation rate, the Federal Reserve raised rates by 25 basis points to 1.25 percent. Creating further uncertainty amid political investigations in the U.S. and weak global growth.
Even though, the Fed committee was optimistic about pricing and job creation, the foreign exchange market responded differently to the U.S. dollar after retail sales figure showed another 0.3 percent decline. Suggesting consumers are wary of the political tension and uncertainty.
In the UK, the inflation rate jumped 2.9 percent, while retail sales declined 1.2 percent in May. The broad decline was as a result of drop in earnings and rising consumer prices that eroded consumers’ buying power. Plunging the pounds against majors.
The Canadian dollar gained against most of its counterpart last week after Bank of Canada signals that higher rate is possible later in the year with solid job data released two weeks ago and surge in oil prices. This bolstered the attractiveness of the loonie and the odds of a rate hike to 90 percent.
While on the other hand, the Japanese yen declined following the decision of Haruhiko Kuroda led Bank of Japan to maintain current stimulus level without an exit strategy, citing weak inflation, lacklustre wage and slow consumer spending.
Technically, CADJPY closed above 83.11 resistance for the first time in almost 3 months, and above 20 days moving average for the first time in almost 4 months last week. Indicating market has started pricing in potential rate hike and a series of positive economic data coming out of Canada of late.
Therefore, the pair is expected to attract enough buyers this week to boost it towards 86.36 resistance levels. Hence, I will be looking to buy this pair above the new support, 83.11 for 86.36 targets.
After the Reserve Bank of Australia tightened lending rate amid fear of housing bubble. The house prices declined for the first time in 17 months and the unemployment rate improved to 5.5 percent, a 4 year low.
While, the strong labour market boost Aussie dollar’s attractiveness, the Japanese Yen dipped as explained above.
Given Australian dollar the edge to gain about 200 pips last week. Accordingly, I am expecting Australia’s positive data and renewed interest to aid AUDJPY rally further this week. Therefore, this week, I will be looking to buy this pair above 84.44 levels for 86.34 targets.
The failure of the European Central Bank to state its exit strategy and get its inflation up, even though the economy is growing at a healthy pace has dampened its outlook and demands among investors.
However, the New Zealand dollar on the other hand, continued to attract buyers after data showed the economy expanded 0.5 percent in the first quarter and current account surplus stood New Zealand $240 million.
From the chart above, this pair dropped 800 pips in the past one month but last week closed below the 1.5469 support for the first time in two months. Indicating the strength of the bearish movement established a month ago.
Again, EURNZD daily candlestick of Thursday confirmed bearish continuation by closing as a bearish pinball. Also, below the 1.5469 price levels. Therefore, this week as long as 1.5469 holds I am bearish on this pair and will be looking to sell for 1.5118 targets.
Last week, the EURUSD was 20 pips short of our 1.1117 targets. The rebound is largely due to poor economic data released on Friday as explained above. But the bearish pinball established 3 weeks ago remained valid and as long as 1.1233 resistance holds I remain bearish on this pair. This is because the US economic data is solid when assessed from on a long-term perspective and in line with Fed targets.
Again, the Euro single currency is overpriced without substantial data to sustain current gain. Therefore, a sustained break below the ascending channel should reinforce sellers’ interest and open up 1.1019 targets in days to come.
The pound gained against the Japanese Yen despite its negative economic data and political issues because the Yen was dumped by investors last week after BOJ failed to succinctly state its exit strategy and raise rates.
As long as 142.42 holds, I am bearish on this pair and will be looking to add to my position.
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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