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The latest data from the official Nigerian Foreign Exchange Market (NFEM) spot rate showed the Nigerian currency consolidating between N1,370 and N1,385 against the U.S. dollar.
The naira’s long-term outlook brightened after Nigeria’s external reserves hit the $51 billion mark, supported by strong crude oil export earnings, debt, and foreign portfolio investment inflows.
Nigeria’s headline interest rates remain attractive, with strong Nigerian Treasury Bill yields (> 16% -19%) and a CBN rate of 26.5%, attracting carry trade and institutional flows.
In addition, transparency improvements and clearer regulations for Bureau de Changes have squeezed out arbitrage opportunities and strengthened confidence in the official exchange window.
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Such improvements in the Nigerian foreign exchange market are helping to boost the confidence of the international community, with a backlog in FX payments now largely cleared,
However, a surge in corporate dollar demand on inventory orders leading into the end-of-year shopping festivals could lead to short-lived weakness above the 1,400 / $ mark.
The Base Case (most likely): The Nigerian Naira is expected to remain in a trading range between N1,320-1,420 / $ until the latter half of the year, supported by the CBN’s massive FX buffer, which can absorb any panic-driven sell-off of the Naira.
Further increases in CBN’s reserves toward its $55 billion target, coupled with acceleration in non-oil exports, could see the currency trending toward N1,200 – N1,250/1$ by the end of the year.
US dollar is on a rampage in the global foreign exchange market
The American dollar rallied against major currencies after the re-ignition of conflicts in the Middle East revived inflation expectations and added to hopes of increased rate hikes by major central banks worldwide. The euro lost 0.1% to $1.1397 while the British pound shed 0.2% to $1.3374 per pound.
Fed funds futures are showing a 50.9 percent implied probability that the U.S. Central bank will implement two or more rate increases by its December meeting, from 47.6 percent on Friday, based on CME Group’s FedWatch tool.
The U.S. Dollar Index, measuring the greenback’s value against six major currencies, rose 0.1 percent to 101.13, after reaching its highest level since July 8.
- “The dollar was obviously the big winner from the war last time, but it’s starting from a pretty different point this time, having strengthened quite a lot and there already having been a fairly lasting repricing of the Fed outlook,” Thomas Mathews, head of markets for Asia Pacific at Capital Economics in Wellington, said.
It’s not clear to me that the greenback would gain as much this time if the situation continued to worsen, which I think is probably reflected in trade so far.
The market’s focus will likely remain on inflation risks, with the release of U.S. Consumer prices on Tuesday and producer prices on Wednesday, along with testimony before the House and Senate by Federal Reserve Chairman Kevin Warsh, Westpac analysts wrote in a research note.
The US dollar outlook brightened in the mid-term after US and Iranian troops were locked in intense missile and drone fire over the weekend, with Iran bombing US positions across states bordering the Gulf on Sunday and claiming to have shut the major Strait of Hormuz shipping route once again.
President Donald Trump earlier claimed Tehran had asked for an extension of talks, which the US had accepted. However, he also stressed that the ceasefire was ‘over’.
The push-pull between diplomatic efforts and escalating confrontation had the market weary about a swift resolution of the conflict.
