The naira held onto its bullish momentum despite the dollar’s most recent aggressive gains this week, as concerns about persistent inflation remained unabated despite weaker-than-expected March US producer prices. This reinforced the belief that the Federal Reserve would postpone raising interest rates this year, reports Nairametrics.
The naira rose to a four-month high of N1,120 per dollar on the black market amid high activity in Nigeria’s money market, driven by a series of foreign exchange (FX) reforms of the Central Bank of Nigeria (CBN) that has unlocked dollar liquidity.
Price action shows the pathway for the bulls seems clear as the naira broke a key resistance level of N1,200 against the greenback, especially when the dollar is strengthening amid strong US economic data as recent fundamentals show the local currency is set to test the N1000 mark
The turning point for the naira was the CBN’s clearance of the FX backlog of requests, estimated to be worth $7 billion.
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Naira’s present level was already the highest the currency has traded since mid-last year at the unofficial market on the eve of a second round of devaluation that cut more than half from its value against the dollar since President Bola Tinubu eased foreign exchange controls in June.
According to Goldman Sachs, rate increases in Nigeria and improved capital inflows indicate a “turning point” for the naira.
Renaissance Capital’s latest projection on Nigeria’s FX market disclosed that the naira is still undervalued and should be at N912 against the dollar.
In April, the CBN forbade the use of dollar collateral for naira loans, except government Eurobonds and foreign bank guarantees, and offered to sell dollars to the country’s Bureaux de Change at more market-reflective rates.
Meanwhile, Goldman Sachs Group Inc has predicted that the naira could extend gains to trade below N1,000 to the dollar.
In an interview with Bloomberg on Friday, Andrew Matheny, an economist at Goldman Sachs, said the greenback could further trade below the projected N1,200.
“This probably can run further; we would see an extension of the move to N1,000 and maybe even sub-N1,000,” he said.
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