Friday, 16 October 2020

FXTM COMMENT ON THE NAIRA

Lukman Otunuga,

Senior Research Analyst at FXTM

 

Our emerging market currency spotlight this week will be the Naira which is currently trading around N462 per Dollar on the parallel markets and N380 on the official exchange.

 

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It has been the same old themes punishing the Naira over the past few years. From multiple exchanges, to depressed Oil prices, shaky economic conditions, Dollar scarcity and the new addition COVID-19. With Africa’s largest economy still healing burns inflicted by the coronavirus menace, the Naira is likely to remain depressed in the near term.

 

Last week Oil prices jumped over 10% thanks to supply disruptions caused by a storm in the Gulf of Mexico and the strike by Norwegian oil workers. However, gains were later capped by rising coronavirus cases across the globe and uncertainty revolving around the U.S coronavirus fiscal stimulus package. Given how the fundamental themes weighing on Oil remain intact, the commodity may struggle to push higher – which is bad news for emerging market oil producers like Nigeria.

 

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It must be kept in mind that over 90% of foreign exchange earnings are acquired from Oil sales and roughly 70% of government revenues. Given how this directly impacts foreign exchange reserves, this complicates the Central Bank of Nigeria’s efforts to defend the Naira against external and domestic risks.

 

Investors will direct their attention towards the pending inflation figures for September which are forecast to jump 13.45%, its highest since March 2018. Inflationary pressures are expected to rise over the next few months amid coronavirus induced supply disruptions.

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