JANUARY UPDATE 2 – NAIRA MIGHT TOUCH N450 / £1 BY SUMMER 2016………………………………………15/01/2016
JANUARY UPDATE – 2016
EXPECT NAIRA TO DEPRECIATE AGAINST DOLLAR AND POUND
TARGET PRICE RANGE: N280 : $1 AND N400 : £1 AND N290 : 1 EURO
CBN’s refusal to supply enough foreign exchange will drive the three key currencies up.
Other factors that will drive down the value of the Naira this month include:
1. SCHOOL FEES – Heavy demand for forex to settle overseas school fees by parents.
2. CRUDE OIL PRICE – As long as crude price continues to fall, CBN will be reluctant to defend the Naira hence, will supply less forex to the market thereby creating artificial scarcity.
3. MIDDLE EAST TENSION – If the Middle East tension between Saudi Arabia and other Arab nations escalate, this will push up crude prices only to a level but not sufficient enough to make the Naira appreciate strongly. Unless it blows out to a full scale war, there will be little impact of the crude supply meaning CBN cannot build its foreign reserve account to defend the Naira.
4. SPECULTORS – In the past months, speculators have made huge profits on betting on the Naira depreciating. This trend will continue in January as they expect the Naira to be devalued. This will create excess demand in the black market and CBN is not willing to meet this demand at this stage so Naira depreciates further.
5. EXCESS LIQUIDITY – There is still excess Naira liquidity in the market and banks will use this excess cash to trade any available forex in the market to generate additional profit for themselves. This too will push up the prices for Dollar / Pounds / Euro.
6. NAIRA VISA / MASTERCARD BAN – CBN has banned the use of Naira Visa/Master cards abroad. This means shoppers and travellers will need to rely on the black market for their supply of dollar. Little availability means the high demand will push up prices all through January.
7. USA and UK INTEREST RATES – USA have increased interest rates in December 2015 and this has stregnthen the dollar. The dollar will further strengthen in January. UK is also likely to increase its interest rate in January. If this happens, this will also strengthen the GBP which will make it more expensive for the Naira.
8. IMPORTERS DEMAND – The importers resume business in January and will demand additional dollars to trade with. This too will drive up the cost of forex as scarcity persists.= thereby weakening the Naira.
9. WEAK STOCK MARKET – The weak stock market has left investors seeking alternative investments. Some have diverted their funds to the forex market, taking part in speculative buying for short gains. This also will increase the participants demanding the short forex in supply and as Mr. President has refused to supply dollars to meet the excess demand, this is bound to depreciate the Naira further.
10. FOREIGN RESERVE ACCOUNT – With a dwindling foreign reserve, the CBN is in no position to defend the naira hence, left to market forces to determine it’s equilibrium. This means Naira will stay low at the target prices set above.
Unless the Dollar / Pound / Euro gain excessively in the international markets, rates should be in the range predicted above for the month of December……………………..07/01/16