Senior Research Analyst at FXTM
As the
worldwide race for a coronavirus vaccine gathers pace and fiscal stimulus
uplifts global sentiment, investors seem to be favouring riskier currencies at
the expense of the Dollar.
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The
Nigerian Naira has struggled to exploit the improving market mood, with the
local currency weakening to N472 to a Dollar at the parallel market in Lagos.
Africa’s
largest economy remains entangled in a fierce battle against the coronavirus menace. Even before the
health crises infected Nigeria, the economy was dealing with uncertainty
triggered by domestic and external risks. 2020 will be a critical year for
Nigeria, at the country juggles with volatile Oil prices, rising inflationary
pressures and wounds inflicted from strict lockdowns.
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The Central Bank of Nigeria (CBN) has cut
interest rates only once since the start of 2020 to stimulate consumption and
support growth. Despite this, the economy is still projected to contract as
much as 5.4% this year. With inflation jumping to its highest level since March
2018 at 12.56%, the CBN is unlikely to cut interest rates anytime soon.
Looking
at the technical picture, the Naira is likely to remain depressed despite the
Dollar weakening across the board. In the face of Dollar shortages and shaky
oil prices, the Naira could find itself exposed to downside shocks. Will the
Naira depreciate towards N500 on the parallel markets? Time will tell.
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