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Deutsche Bank predicts further naira gains, adds Nigeria to FX watchlist - THE GUARDIAN
Deutsche Bank has added Nigeria to its frontier foreign exchange monitor, saying the naira is undervalued and could appreciate further against the dollar.
According to Bloomberg, the German lender said in a client note on Monday that the naira offers
attractive carry and favourable real interest rates, factors it considers supportive of further gains.
However, the bank warned that rising government borrowing could threaten the currency’s outlook.
“The principal risk to the outlook is from the fiscal side,” Deutsche Bank said.
The lender pointed to the Debt Management Office’s (DMO) bond issuance calendar for the fourth quarter, which signals “elevated issuance levels”.
Deutsche Bank expects government spending to increase ahead of Nigeria’s January elections but sees “less risk from the elections themselves”.
The naira has appreciated by nearly eight per cent against the dollar this year, ranking it among the 10 best-performing currencies out of 144 tracked by Bloomberg.
The currency’s gains have also
boosted returns on Nigerian equities and local-currency bonds, which rank among the strongest performers globally, Bloomberg reported.
Deutsche Bank’s frontier foreign exchange monitor also tracks Angola’s kwanza and Ghana’s cedi.
The bank said the three African economies had performed well this year despite the economic fallout from the conflict in the Middle East.
According to the lender, higher crude oil prices have strengthened the current-account positions of Nigeria and Angola, while rising gold prices have
benefited Ghana.
Deutsche Bank also cited high real interest rates and ample foreign exchange reserves as factors supporting investor inflows into the three economies.
