Since the start of the Central Bank of Nigeria’s Dutch Auction System last Tuesday, the local currency had its first bearish decline on the Nigerian FX market.
This happened as the dollar fell following a weak U.S. producer inflation report that stoked expectations of further interest rate cuts based on a similar slowdown in consumer inflation.
After four days of advances, the Nigerian naira saw its first drop at the official FX market yesterday. The value of the naira dropped to N1,582/$.
The Nigerian Autonomous Foreign Exchange Market (NAFEM) saw a decrease in trading volume from $246.4 million on Monday to $201.43 million on Tuesday, an 18.2 percent drop. The value of the naira also moderated, falling from N1,580 per dollar on Monday to N1,590/$ at the black market, which is easily accessible to most Nigerians.
As a result, the difference between the rate on the parallel market and the NAFEM rate narrowed to N7.91 per dollar from N10.8 per dollar on Monday. These data were provided by FMDQ.
BrandSpur banking and finance news reflect that the Nigerian Apex Bank has worked hard to stabilise the country’s foreign exchange market, which has helped to moderate the volatility of currency rates through the use of the Retail Dutch Auction.
The CBN has implemented the Retail Dutch Auction system, which sells foreign exchange to end customers through an auction procedure. A call for bids is issued to begin the process, and each bid is then totalled and rated from highest to lowest.
The CBN stepped up its efforts this year to reduce the volatility of the naira’s exchange rate, which led to the naira gradually strengthening vs the dollar. It started to rise at around N1,912 per dollar in late February, fell below N1,000/$ in April, and is currently back at about N1,600/$ levels.
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Currency Index Close to 7-Month Low Both the dollar index and its futures displayed early weakness in London trade, continuing their steep overnight losses and drawing closer to an eight-month low that was reached earlier in August.
As traders awaited the CPI data, the haven currency was approaching a seven-month low on weaker PPI data.
The dollar fell as a result of the producer price index inflation data for July coming in lower than expected. With the slight selling pressure, there hasn’t been much of a shift in the technical picture for DXY.
The Relative Strength Index (RSI) for DXY is below the 50-point barrier, which suggests a sustained selling strategy based on price movement.
BrandSpur banking and finance news further reports that while markets pricing in a potential 25 basis point decrease, this reading led traders to marginally move their bets in favour of a September 50 basis point cut.
The PPI figure, however, fuelled hopes that the consumer price index inflation report, which is expected later today, would also show a decline in inflation in July, giving the Federal Reserve yet more reason to begin cutting rates.
Rate cuts are anticipated because markets are beginning to fear that a U.S. economic slowdown may prompt the Fed to ease further. In addition to the inflation data, this week’s figures for industrial production and retail sales are provided.
The prospect for U.S. Federal Reserve interest rate decreases is still too close to call given the fragility of the American economy and market expectations of reduced inflation. But for now, representatives of the US Central Bank are exercising caution.
Naira bulls may not be able to steer the medium- to long-term trend, as evidenced by the fact that short sellers have been a major hindrance in the short-term trajectory.
