MARCH UPDATE – 2016 ………………………………..09/03/16
EXPECT NAIRA TO DEPRECIATE SLIGHTLY AGAINST DOLLAR AND POUND
TARGET PRICE RANGE: N330 : $1 AND N450 : £1 AND N350 : 1 EURO
The FX market witnessed a turbulent February but rates are gradually attaining an equilibrium. For March, we expect the following factors to impact the Naira negatively thereby, forcing a slight depreciation against the three major currencies:
1. CRUDE OIL PRICE – The crude oil price is hovering around $40 a barrel and we expect it to maintain that range this month. This means the Federal Government budget of $38 per barrel will be surpassed. As long as Nigeria’s output is maintained, the government should be able to build some reserves from this point on. This will help increase the intervention fund from CBN which should improve the dollar supply in the market. CBN might also start to consider relaxing its FX policy as the reserves improve. Should the price dip, this will generate pressure on the Naira.
2. OPEC CUTS – Should OPEC agree to a cut in output, this should push up crude prices and also aid the increase in the intervention fund. The OPEC meeting this month should help the Naira stabilise and prevent the sort of high exchange rates we had in February. If the meeting falls through, then more pressure is placed on crude prices which have a direct impact on the Foreign reserve. This might lead to tighter CBN policies hence, Naira depreciation.
3. SPECULTORS – Devaluation of the Naira is still expected so speculators will still maintain demand for forex to take speculative positions. This will drive down the value of the Naira further as more pressure is created.
4. LOW FOREX INFLOW – The Foreign Direct Investment has dropped and is still dropping as foreign investors still anticipate a devaluation no matter what the President says. AbokiFX believes few inflows would also be recorded this month since Nigeria is not a tourist destination so very little is expected to help boost the FX supply. More pressure is therefore expected in March.
5. SCHOOL FEES – As we approach a new school term towards the end of March, families will try to take advantage of the low dollar rate compared to February rates. This will create a surge in demand which will increase the pressure on the Naira, making the Niara slide slightly towards the N330 target.
6. EASTER BREAK – Some demand is expected around here, where families who want a quick getaway around the Easter holidays will create brisk demand for FX. This brings its own additional pressure on the Naira. AbokiFX believes the pressure is expected around the 21st to 25th March 2016.
7. Q1 INVOICES FOR IMPORTERS – Foreign supplier invoices for the 1st Quarter of 2016 will start to mature towards the end of this month. AbokiFX expects importers to creep back into the market to buy some more FX in order to make payment. This will depreciate the Naira slightly.
8. WIDER MARKET UNCERTAINTY – AbokiFX has discovered wider market uncertainly across all FX traders in the parallel market. This explains the wide margins now being experienced in quotes given in black markets. It seems the market has now been deregulated where most traders quote based on their last trade. This is expected to continue in March. At the slightest panic in the market, expect higher fluctuations as traders try to offload as fast as they can.
9. CBN FX INTERVENTION FUND – AbokiFX Research team has realised that FX rates, especially the US Dollar, seem to drop on Thursdays as CBN releases its intervention fund. We have discovered a correlation in rate prices taking a dip early on Thursdays before rebounding. CBN will not be increasing its intervention fund in March hence, sustained pressure expected to continue on the Naira. THE TIP HERE IS TO BUY ON A THURSDAY AS THIS IS WHEN THE RATES IN THE MARKET DROP THE MOST.
10. FOREIGN RESERVES STILL LOW – The Foreign reserves are currently $27bn. This is still considered low and abokiFX does not expect CBN to increase FX supply until the reserves improve significantly. This means the market demand though reduced, will still not be met hence, more pressure on the Naira.
Unless the Dollar / Pound / Euro gain excessively in the international markets, rates should be in the range predicted above for the month of March………………..09/03/16