The naira gained momentum and hit its highest level against the greenback since it was devalued in January. The Nigerian currency appreciated for the 4th consecutive week to settle at N1,245 per against the dollar amid amplified confidence in the naira.
The Nigerian local currency ended the week at ₦1,251.05/$1, according to data from the Nigerian Autonomous Foreign Exchange Market (NAFEM), up against the US dollar at the official window for the fourth straight trading day in April 2024.
The CBN, led by Governor Olayemi Cardoso, has implemented several policies to increase local dollar liquidity and free up the naira.
The Economist Intelligence Unit (EIU) had predicted further depreciation of the naira, but so far, the naira has defied it. The EIU predicted the value of the Nigerian Naira would eventually level out at roughly N2,000 per US dollar this year.
However, current fundamentals and price actions indicate that the Nigerian Naira faces significant resistance, especially when the US dollar is strengthening amid strong U.S economic data despite a hawkish CBN as the naira oscillates not too far from a key support level of N1200/$.
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Hawkish CBN
Nigeria’s central bank paid off all its verified foreign exchange backlogs as part of its plan to steady the naira and rein in skyrocketing inflation,
The Nigerian Central Bank raised the benchmark interest rate by 600 basis points to 24.75 percent this year in response to the country’s rapidly rising inflation. However, the CBN’s overall aggressive strategy has brought about some stability. This strategy includes cracking down on the unofficial market and virtual service providers who are allegedly amplifying the naira’s weakness by driving demand for the dollar pegged USDT
Solid U.S Economic data
With the nonfarm payrolls report for March coming in significantly better than anticipated, the dollar index continued to rise modestly in London trade. Markets sharply reduced expectations that the Fed will cut interest rates by as early as June due to the hot labor market. Trader expectations of a 25-basis point cut in June have decreased from last week’s 55 percent to approximately 51 percent.
The CME Fedwatch tool highlighted those expectations for a hold increased to 46.8% from 39.6% last week.
Wednesday’s consumer price index data for March is expected to provide additional inflationary cues. Wednesday is also the deadline for the Fed’s March meeting minutes, which should provide additional hints after several officials cautioned that the bank was not in a rush to lower interest rates.
Naira’s prospect
Nigeria’s 2024 FG budget is largely reliant on oil revenue to cover its obligations. The market will likely gauge OPEC’s next reading for more insights into Nigeria’s oil production.
OPEC’s oil production was down in March, due to a combination of lower oil exports from both Nigeria and Iraq and ongoing voluntary supply restrictions. OPEC produced 26.42 million barrels per day on average in March, up from 50,000 barrels per day in February
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