Naira Firm Up Against Dollar, As US, North Korea Tension Heightens

Hamilton Nwosa
Writer

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The value of the naira went in different directions at the Investors and Exporters window of the official and parallel market last week as tension between North Korea and the United States impacted the value of the dollar at the international foreign exchange market.

Tension between the two countries have over the past weeks heightened as investors seek out investment havens. The United States dollar index which tracks the dollar against a basket for six major currencies slipped on the back of weaker-than-expected U.S. producer prices. The index stood at 93.468 below levels around the 93.4 handle seen in the previous session. Ahead, the release of U.S. July CPI due during the U.S. trading day is expected to influence the direction of the dollar.

Despite a drop in foreign exchange inflow at the Investors and Exporters window, the value of the naira gained strength rising by 0.7 per cent selling at N364.78 to the dollar, one of the lowest values achieved on the market since its inception this year.

The volume of foreign exchange traded at the I&E window had declined by over 50 per cent. As against $1.047 billion that was traded on the window the previous week, turnover dropped to $440.2 million, a situation that did not affect the naira negatively.

However, the naira depreciated at the parallel market where it declined to N367 to the dollar at the close of business last week from N365 which it began the week’s trading activities. Likewise at the Central Bank of Nigeria end of the market, the naira closed weaker at N305.6 to the dollar from N305.5 which it opened the week.

Lukman Otunuga, research analyst at FXTM, said: “Today’s main focus and event risk for the US dollar, will be the pending inflation report from the United States Federal Reserve, which should offer fresh clues on the pace of monetary tightening.

“Although the Greenback has maintained its post NFP gains this week, the overall price action suggests that market players are still hesitant to purchase the currency. Investors need more convincing over the possibility of higher US interest rates this year and this should come in the form of rising inflation.’’

He noted that “with concerns over stubbornly low inflation weighing heavily on the prospect of another US interest rate increase, the pending US CPI data will be in sharp focus. A soft inflation figure below market consensus is likely to quell expectations of higher US interest rates, ultimately pressuring the dollar.”

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