Nigeria’s week ahead – Dollar & Naira in focus

By Lukman Otunuga, Senior Research Analyst at FXTM

This could be an eventful week for the Nigerian economy despite the light economic calendar.

Global sentiment remains gripped by inflation fears, global growth concerns and geopolitical risks. As investors maintain a safe distance from riskier assets, this could impact emerging markets like South Africa and Nigeria.

Already, global stocks have kicked off the week on a negative note as new Chinese lockdowns and fears of aggressive rate hikes leave market players on edge. This sense of uncertainty continues to empower the dollar, which has appreciated against every single G10 and most emerging market currencies today. As the dollar strengthens its grip on the FX space, the Naira could find itself under renewed pressure over the next few days.

On the bright side, the International Monetary Fund (IMF) revised Nigeria’s growth forecast in 2022 to 3.4% from its earlier projection of 2.7% announced in January. Although the World Bank retained its growth forecast for 2.5% in 2020, it urged Nigeria to rethink its fuel subsidy regime and multiple exchange rates policies. All in all, Nigeria’s position as an energy exporter offered some protection against external risks, especially as inflation raged across the globe.

Looking ahead, expectations for the next policy moves by major central banks remain a key theme across global financial markets with key economic data and events in focus.

With regard to the dollar, it has appreciated against almost every single G10 currency year-to-date excluding the Australian dollar. It looks like everyone wants a juicy piece of the world’s most liquid currency, thanks to rate hike expectations, its safe-haven nature and rising Treasury yields. Fed hawks are certainly in the building with the Fed raising interest rates for the first time in three years back in March, and expected to raise rates by 50 basis points in May.

A lot is going on with the dollar with key economic data likely to inject the currency with renewed vigour. Over the next few days, US consumer confidence data, Q1 GDP, consumer sentiment and the PCE deflator among other key reports will be published.

Should they reinforce market expectations over the Federal Reserve aggressively raising interest rates, the dollar is set to appreciate further – pressuring emerging market currencies.

Looking at the Naira, it opened at N588.00 per $1 at the parallel market today. According to Bloomberg, the spot price of the Naira is at N415 with the I&E rate at $416.

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