Thursday, 3 September 2020


Lukman Otunuga,
Senior Research Analyst at FXTM

The Naira has marched into September with a renewed sense of confidence, rallying to its strongest level since April on the black markets as supplies of Dollar surged ahead an auction set by the Central Bank of Nigeria (CBN).

On the parallel markets, the Naira is trading around 435 per Dollar compared to the 465 witnessed on the last day of August. It looks like local currency is deriving strength from the Central Bank of Nigeria’s announcement in resuming the sales of foreign exchange to operators of the Bureau de Change (BDC) from September 7.

Over the past few months, the CBN has found it challenging to clear the backlog of foreign exchange demand by foreign investors as the havoc wrought by COVID-19 created shockwaves across the economy. Dollar shortages were further intensified by depressed Oil prices which account for more than 90% of foreign exchange earnings and over 70% of government revenues.

The economic outlook for Nigeria remains clouded by uncertainty due to COVID-19 and shaky Oil prices. GDP is expected to contract anywhere from 3% to 6% in 2020 with most of the damage from the pandemic seen in the first half of the year. Although a weak recovery is predicted in 2021, this will depend on oil prices and the government’s efforts in implementing critical structural reforms to reducing Nigeria heavy dependence on Oil.

Gold wobbles as Dollar fights back
Gold has woken up on the wrong side of the bed this morning, struggling to nurse wounds inflicted from Wednesday’s hefty depreciation as king Dollar rebounded from two-year lows.

The precious metal has lost almost 2% since the start of the September and could extend losses in the short term if the Dollar fights for its thrown and “risk-on” remains the name of the game. However, when looking at the key themes influencing Gold, the medium to longer term outlook points north despite the possible weakness in the near term.

Buying sentiment towards Gold could be dented by a sense of confidence over the world economy recovering quicker than expected, while renewed US-China trade hopes and optimism around a coronavirus vaccine may boost attraction towards riskier assets at the expense of safe-havens.

However, rising coronavirus cases in the United States, political uncertainty ahead of November’s presidential elections and Brexit drama among other negative themes may drain investor confidence, ultimately accelerating the flight to safety.

On top of this, low-to-negative government bond yields, unprecedented monetary stimulus and handsome fiscal packages should continue sweetening appetite for the precious metal for the rest of 2020. Although economic data from major economies have beat estimates, the overall shaky macroeconomic and geopolitical landscape may ensure the Gold remains a hotspot of safety.

Looking at the technical picture, prices remain in a wide range on the daily timeframe with support at $1910 and resistance around $1985. It looks like the precious metal is under pressure with $1910 acting as the first level of interest. A breakdown below this point could encourage a decline towards $1890. Should $1910 prove to be reliable support, prices could rebound back towards $1950, before potentially testing $1985.

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