Following an Iranian strike on Israel, the naira appreciated versus major currencies on Monday, as demand for safe-haven assets soared. This saw the greenback reach more than five-month highs.
As of late Sunday, the local currency was trading for less than N1000 in certain areas of the parallel market, fulfilling Goldman Sachs’ prediction.
The economists at the American Investment Bank said that in the upcoming months, the Naira’s bullish trend on the foreign exchange market will probably lead to it trading for less than N1,000 per US dollar.
The tier 1 investment bank stated that the increase in the value of the Nigerian Naira, supported by capital inflows and consecutive interest rate hikes, assisted in recovering from significant losses following two devaluations since last June.
Remember that in March, Goldman Sachs predicted that in 2024, the value of the Naira will increase to N1,200 per US dollar. In recent months, the central bank has taken some policy steps to stabilize the foreign exchange market.
At the most recent Monetary Policy Committee (MPC) meeting, the CBN raised interest rates to 24.75%, which helped it make up for the losses from the two devaluations that have happened since June of last year.
The CBN’s continuous intervention—selling foreign money to Bureau De Change operators at a revised rate—results in more gains for the naira.
According to Finance Minister Wale Edun, the market expects greater inflows of US dollars from the selling of foreign currency bonds in the second quarter. This occurred when the government pried foreign capital into the economy by offering high-yielding short-term debt instruments at a premium.
Nigeria’s gross foreign reserves have declined in spite of the global commodities market’s ongoing rise. Oil prices surged due to the geopolitical upheaval in the Middle East and the expectation of an attack on Israel by the Iranian government.
The price of crude oil has surged above $90, and Nigerian grades are selling for more than the ICE Brent benchmark, even though their production has decreased, which has negatively impacted their financial performance.
The tension between Israel and Iran supported the dollar index, which steadied in London trade after reaching five-and-a-half-month highs on Friday. Following Iran’s major missile and drone strike against Israel, demand for safe haven increased, supporting the US dollar.
But the strike appeared to have little impact, and Iran likewise appeared to have stopped targeting Israel. Israeli ministers reportedly said that they did not want to launch a counterattack right away following the attack.
In addition, the dollar was helped by expectations of higher-for-longer U.S. interest rates following the hawkish signals from the Federal Reserve last week and the high inflation data. Public opinion of Asia was further depleted by China’s weak economic performance. China’s disinflation decreased in March, while the country’s import and export figures were below forecast.
The dollar was also supported by sharply declining bets that the Fed would cut interest rates in the first half of 2024. The high March inflation data came next.
