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New Zealand Dollar Jumped The Most Since November

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New Zealand Prime Minister, John Key

December is turning into a cruel month for traders counting on cuts in interest rates to drive down currencies.

New Zealand’s dollar jumped the most since November after central bank chief Graeme Wheeler delivered the policy easing that economists had predicted without the promise of further reductions. That came less just a week after his European counterpart, Mario Draghi, sparked the euro’s biggest rally since 2009 by unveiling a smaller-than-anticipated stimulus package.

The elephant in the room is the Federal Reserve. Its looming policy decision is making it trickier for speculators to predict the actions of other central banks and to work out where exchange rates are headed. As with the euro, strategists are now reassessing forecasts for the kiwi, becoming less certain how far it can extend this year’s 13 percent drop, which is already the steepest since 2008.

“Investors are clearly finding it harder to read central banks,” said Mansoor Mohi-uddin, senior markets strategist at Royal Bank of Scotland Group Plc in Singapore. “Central banks are all hoping the Fed’s imminent tightening will weaken their domestic currencies against the greenback, so they’re holding back on meeting the market’s expectations for further easing.”

The Parker Global Currency Manager Index of top funds has lost 0.7 percent this month to extend its slide in 2015 to 2.7 percent. That puts it on course for its worst annual decline since 2011.

Falling Short

For New Zealand dollar bears, Reserve Bank Governor Wheeler didn’t go far enough when he cut the official cash rate by a quarter-percentage point to 2.5 percent, completing the reversal of the four increases in 2014. They were left disappointed by his comments in Wellington on Thursday that the fourth cut this year should be enough to ensure inflation accelerates toward the central bank’s target. Lower interest rates tend to reduce demand for currencies.

Instead, traders will have to depend on the prospect of further U.S. rate increases, as well as the falling Chinese yuan and slumping commodity prices, to push the kiwi lower, RBS’s Mohi-uddin said.

The local dollar was at 67.53 U.S. cents as of 8:53 a.m. in London on Friday, having rallied from a six-year low of 61.30 on Aug. 24 and as low as 65.82 just after the RBNZ’s policy announcement. It gained as much as 1.7 percent by the New York close on Wednesday, the trading session that included the policy decision, the steepest intraday climb since Nov. 19.

‘Relatively Robust’

“We still like the U.S. dollar higher heading into the Fed, and the current concerns about commodity prices and China support the case for New Zealand dollar weakness,” said Raiko Shareef, a markets strategist at Bank of New Zealand Ltd. in Wellington. “But there will be some offset by a relatively robust New Zealand economy and an on-hold RBNZ, which means that weakness may be more modest than we’d thought earlier.”

Currency bears were also caught out as the euro surged 3.1 percent on Dec. 3 after the European Central Bank’s quantitative-easing overhaul and deposit-rate cut fell short of what some investors had predicted. Draghi repeatedly hinted about more easing in the run-up to the gathering, prompting hedge funds and speculators to push bets on a weaker euro close to a record.

After two cuts this year, the Bank of Korea left its benchmark rate unchanged Thursday, saying it would wait to see how the Fed’s decision impacted its economy.

That may focus attention on whether other central banks will be influenced by the prospect of an imminent U.S. rate increase. Officials in Sweden, Hungary and the Czech Republic are all due to meet before the Fed decision next week. Norway’s central bank will decide on policy after its U.S. counterpart.

Reassessing Forecasts

The full implications of this month’s decision in Wellington have yet to be digested. In the wake of the RBNZ meeting, Macquarie Bank Ltd. and Bank of New Zealand are both looking again at their forecasts for the kiwi to weaken to 61 U.S. cents in the first half of 2016. The median estimate in a Bloomberg economist survey is for a drop to 62 cents.

New Zealand’s dollar tumbled 18 percent against its U.S. counterpart in the first three quarters of this year, and since the end of September has rebounded almost 6 percent, outpacing all of its major peers. The resurgence has been helped by prices for dairy, the country’s biggest export, stabilizing after reaching a 12-year low in August.

Wheeler has now unwound all of the 1 percentage point of rate increases he carried out last year, taking borrowing costs back to the record low of 2.5 percent that he inherited when the New Zealand native took up his post in 2012 after spending more than a decade in Washington as a World Bank official.

Preserving Ammunition

“Strictly speaking, the explicit easing bias remains, but it is conditional and the RBNZ made it clear they think they have done enough,” said Gareth Berry, a foreign-exchange and rates strategist at Macquarie Bank in Singapore. “Apart from the usual sensitivity to dairy auctions, global influences will have a greater say.”

He has been relying on lower rates to make the nation’s exports more competitive, though he’s reluctant to ease further as Auckland’s property boom spreads and the economy shows signs of gaining momentum.

“It does seem that the central banks hope that the Fed will help them keep their currencies from rallying,” said Valentin Marinov, head of Group-of-10 currency research at Credit Agricole SA’s corporate and investment-banking unit in London. “They feel they need to preserve some of their ammunition for the future battles of the global currency war.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Forex

Naira Remains Flat Against US Dollar, Euro

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500 and 1000 naira bills (Nigerian currency)

Naira Exchange Rate Remains Flat Against US Dollar and Euro on Black Market

The Naira remained unchanged on Tuesday despite the curfews and social unrest that grounded the nation’s economy.

Naira traded at N463 against the United States dollar on the black market on Tuesday morning, the same rate it exchanged on Thursday.

Against the European common currency, the Nigerian Naira exchanged at N540 to a single Euro.

However, the local currency dipped slightly against the British Pounds as it exchanged at N595 to a British Pound, representing a N3 decline from N592 it traded on Friday.

Social unrest amid weak economic fundamentals continued to weigh on Nigeria’s local currency, especially with Foreign Direct Investment expected to drop in the final quarter of the year through the first quarter of 2021.

This coupled with weak foreign reserves and a drop in global demand for crude oil is expected to compound Nigeria’s economic woes.

Lagos State governor, Babajide Sanwo-Olu, has said Nigeria’s commercial capital needs at least N1 trillion to fix the destruction and vandalisation that trailed the #EndSARS protest in the state. An amount equivalent to the state’s annual budget.

Experts, who spoke on the situation, said it would hurt the nation’s output and may plunge fourth-quarter GDP by as much as 6.9 percent. These rising uncertainties amid the second wave of COVID-19 and possible lockdown in key trading partners could further plunge Naira value against global counterparts in the fourth quarter of the year.

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Transparent Exchange Rate Can Boost Nigeria’s Forex Inflow

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Global debt

Transparent Exchange Rate Can Improve Nigeria’s Diaspora Forex Inflow

Experts that gathered at a virtual summit organised by Ecobank Nigeria with a theme, ‘Financial Services & Remittance Solutions for Nigerians in Diaspora: Leveraging Ecobank’s Pan-African offering’, have said Nigeria can boost foreign exchange inflow through proper engagement and a transparent exchange rate.

Mr. Patrick Akinwuntan, Managing Director of Ecobank Nigeria, in his opening speech, said growing evidence has shown that diaspora remittances were positively impacting economies of various nations in the world.

Akinwuntan put the total annual remittances to Nigeria at around $20 billion per year, saying it boosts the nation’s foreign exchange earnings.

Speaking on how these remittances can be sustained, he said constant engagement with Nigerians abroad is imperative and it is the reason Ecobank is leveraging its digital technology through Rapidtransfer App and Ecobank mobile App to ensure affordable and easy transfer of funds by Nigerians abroad to their home country.

“Our dedicated Rapidtransfer, mobile remittance app is a game-changer for the market. It enables Africans and indeed Nigerians wherever they are to easily and instantly send money to bank accounts, mobile wallets and cash collection in – and across – 33 African countries.

“Historically, the cost of sending cross-border remittances to Africa has been far too high at about 6%-7%. Similarly, the process to send funds has long been inefficient and burdensome, with customers typically needing to go physically to an agent sometimes late in the night or in poor weather with attendant discomfort and risks.

“The Rapidtransfer app remittance solution is a quick, easy and reliable digital solution that removes all of these issues. It is indeed a game-changer for Nigerians and all Africans with its sustainable and standout affordability,” he said.

Speaking on transaction charges, the Ecobank Managing Director said transfer fee range from zero to about 3 percent as compared to 6 – 7 percent charge elsewhere.

He added that the bank’s instant transfer and transparent exchange rate is a unique factor its competitors do not possess.

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Forex

Naira to Dollar Rate Today: Naira Exchanges at N463 to Dollar on Black Market

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interbank

Naira to Dollar Rate on Black Market Today Stood at N463

The Nigerian Naira to dollar rate slid slightly against the United States dollar on Tuesday on the black market as social unrest continues to weigh on the nation’s economic outlook.

The local currency lost N1 against the US dollar to N463 while against the British pound it remains pressured at N592.

This decline continues against the European Union’s common currency, the Euro. The Naira traded at N540 to a single Euro on the black market.

Naira to dollar rate plunged amid rising economic uncertainties and unclear policy path caused by both COVID-19 and government limited fiscal buffers to cushion the negative impacts of the virus on Africa’s largest economy.

This coupled with the ongoing social unrest by the Nigerian youths to force decorum across the Nigerian Police Force and call global attention to decades of systemic intimidation and harassment of innocent citizens.

The Nigerian Stock Exchange has been closing flat since Thursday and continued this week, suggesting that investors are concerns and wary of eventualities as they look to safeguard their investments.

Again, the projected third-quarter recession, low foreign revenue generation, weak consumer spending and the rising cost of living are some of the factors hurting the Nigerian Naira outlook.

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