The naira strengthened against major currencies on Monday the greenback saw an increased safe-haven demand, in the wake of an Iranian strike on Israel, putting it at more than five-month highs.
Naira breaks key resistance
Goldman Sachs projection became a reality when the local currency exchanged at below N1000 at some segments of the parallel market as of late Sunday.
The American investment bank’s economists stated that the Naira’s bullish momentum on the foreign exchange market will likely cause it to trade for less than N1,000 per US dollar in the coming months.
The tier 1 investment bank claimed that the rally in Nigerian currency helped recover from large losses after two devaluations since last June by being bolstered by capital inflows and successive interest rate hikes.
Recall in March, Goldman Sachs earlier projected that the Naira would appreciate to N1,200 per Dollar in 2024. The top bank has implemented several policy initiatives in recent months to bring stability to the foreign exchange market.
The CBN increased interest rates to 24.75% at the most recent meeting of the Monetary Policy Committee (MPC), which helped it recover losses from the two devaluations that occurred since June of last year.
Further gains for the naira result from the CBN’s ongoing intervention, which involves selling foreign exchange to Bureau De Change operators at a revised rate.
The market anticipates higher inflows of US dollars from the sale of foreign currency bonds in the second quarter as revealed by Finance Minister Wale Edun. This came when the government offered high-yield short-term debt products at a premium to entice overseas capital into the economy.
Nigeria’s gross foreign reserves have decreased despite a persistent increase in the world commodities market. The Middle East’s geopolitical unrest and the anticipation of an Iranian government strike on Israel caused oil prices to soar.
Crude oil prices have risen beyond $90, and Nigerian grades are trading at a premium to the ICE Brent benchmark despite a drop in production volume that had a detrimental effect on fiscal performance.
Fears over rates have sent the dollar to a five-and-a-half-month high
Israel and Iran conflict bolstered the dollar index as it steadied in London trade after surging to 5-½ month highs on Friday. Demand for haven after Iran’s massive missile and drone strike against Israel strengthened the US dollar.
However, it seemed that the hit had little effect, and Iran also gave the impression that it had finished attacking Israel. According to reports, Israeli ministers also stated that they had no plans to retaliate immediately after the strike.
In addition, the expectation of higher-for-longer U.S. interest rates supported the dollar in the wake of last week’s hawkish Federal Reserve signals and high inflation figures. Weak economic prints from China further drained public sentiment toward Asia. March saw a decline in China’s disinflation as well as lower-than-expected export and import data.
Rapidly falling wagers that the Fed will lower interest rates in the first half of 2024 also helped to support the dollar. This was followed by high March inflation figures.