External drivers, namely, global oil prices and international movement in the dollar exchange rate, have been predicted to shape Nigerian currency, the naira, throughout this week, amid a light week-long economic calendar for the country.
London based Lukman Otunuga, a research analyst at FXTM, said in a note made available to business a.m. that an erosion of appetite for emerging market currencies had been fueled by higher treasury yields and an appreciating dollar, adding that this has helped the naira to ease slightly against the dollar on the domestic parallel market in Nigeria.
He also said in the note that prospect for higher interest rates in the United States had triggered fears of possible capital outflows across the world, adding that this weighed on emerging markets’ currencies, like the Nigerian naira.
“With the economic calendar for Nigeria fairly light this week, the naira could continue to be impacted by external drivers, namely oil prices and dollar movement,” he said in the note.
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The dollar was on a fight for what Otunuga described as the’ throne’, noting: “The story behind the dollar’s incredible appreciation in recent days continues to revolve around rising U.S bond yields and easing geopolitical risks.”
Besides, Otunuga said market expectations of higher U.S interest rates have also played a leading
role in the dollar’s resurgence, with the dollar index marching to levels not seen in over three months, that is, above 91.00.
“With the dollar finding support from rate hike expectations and bullish sentiment towards the U.S economy,
are the bulls back in town?” Otunuga asked rhetorically.
He said the dollar faced a single event risk this week, namely the release of U.S gross domestic products (GDP) figures for the first quarter, which are expected to show economic growth cooling as consumer spending eases.
But he warned that an upside surprise in U.S Q1 GDP could boost confidence in the health of the U.S economy, ultimately elevating ‘King Dollar’.
“Taking a look at the technical picture, the Dollar Index is turning increasingly bullish on the daily charts.
A decisive daily close above 91.00 could result in an incline towards 91.80. Alternatively, if bulls tire and run out of momentum, prices could dip back towards 90.50 and 90.25, respectively,” Otunuga said.
The outlook for another major international trading currency for Nigeria, the euro, according to the FXTM analyst, is considered to be at the mercy of the dollar, which is appreciating, as prices struggle to be above 1.2200 support level.
“Market players will direct their attention towards the European Central Bank meeting on Thursday where policymakers are widely expected to leave monetary policy unchanged. However, there could be some action if ECB President Mario Draghi adopts a cautious stance during the post-meeting press conference,” Otunuga explained.
He further said that a focus on the technical picture, shows the Euro/USD to be at risk of tumbling lower if bears are able to secure a daily close below 1.2200, adding that previous support at 1.2200 could transform into a dynamic resistance that encourages a decline lower towards 1.2150 and 1.2090, respectively.”