The Nigerian currency lingers at N1600/$ in the black market on Wednesday morning, despite improved market fundamentals in the country’s FX market and the dollar index trading near its 7-month low.
Naira short sellers remain unfazed despite the Federal Government’s recent domestic introduction of dollar bonds to increase liquidity in the nation’s foreign exchange market. NAFEX data also showed that the local currency closed flat at N1579.74/$.
The naira is under pressure despite improved market fundamentals.
According to the CBN, remittances from the diaspora rose by 130% annually to $553 million in July 2024 compared to the same month in 2023.
The CBN’s inconsistent FX distribution to Bureau De Change (BDC) operators has partly been blamed by foreign exchange traders for the naira’s ongoing decline and the volatility of the foreign currency market.
U.S. Dollar Index Under Pressure
The dollar appreciated slightly in early European trade on Wednesday, even though the minutes from the most recent Federal Reserve meeting and anticipated changes to payroll statistics are expected to signal an interest rate decrease in September. It remains very close to seven-month lows, however.
The dollar index lost over 200 basis points over the past month due to significant pressure from U.S. bond yields falling to levels not seen in more than a year, which fueled concerns about a recession driven by unexpectedly weak monthly jobs statistics.
This puts the revised payroll data, anticipated later today, in the spotlight. A significant downward revision could notably impact the value of the dollar.
Traders will focus on the possibility of a rate cut by the Fed at its mid-September policy meeting, as well as the release of the minutes from the late July Fed meeting later in the session.
The Federal Reserve has kept its benchmark overnight interest rate within the current range of 5.25% to 5.50% for a while. Fundamentals indicate ongoing weakness in the U.S. economy.
This forecast is influenced by macroeconomic variables, portfolio reallocations, and positioning changes, all of which are expected to exert downward pressure on the currency in the coming months.
Today, the Bureau of Labor Statistics will present updated data on employment growth through March 2024 based on more precise information.
According to some estimates, job gains during that time could be revised downward by 500,000 to 1,000,000.
The FOMC meeting minutes from July 31 will be made public by the Fed later today. Markets expect to hear about the Fed becoming more comfortable with inflation and less comfortable with employment.
The DXY sell-off is beginning to gain traction as traders anticipate a potentially significant new market trend. Let’s see how it performs around the 101.00 mark. (Nairametrics)
