The naira’s wild dance against the dollar in the official market has heightened concerns among residents in Africa’s largest economy.
The naira dipped to the lowest level as the U.S. dollar index ended the week in high positivity amid favourable economic data in the United States.
The naira fell to an all-time low of N1,099.05/$ at the official market amid high market volatility in the country`s anaemic FX market.
This naira lost about a third of its value as it dipped from Thursday’s closing rate of N843.07 to the dollar as shown on the FMDQ Securities Exchange.
The naira is drifting towards the parallel market level as the central bank is yet to clear outstanding foreign currency amounts owed in forward deals.
The Nigerian currency, however, maintained some form of stability at the black market as it exchanged within the bandwidth of N1200 on Saturday.
The US dollar strengthened on Friday with the release of fresh statistics that indicated the job market in the country was still strong and that job growth in November was faster than expected.
The U.S. dollar index saw a 0.3% increase at 104 index points last week, putting it on track for a slight weekly gain following a rough month during which it lost around 3% of its value.
A move above 104.5 index points is probably going to fuel the index rally and put further pressure on the naira.
Price action patterns, on the other hand, indicates that the US dollar is declining in momentum below or around 105.5, in keeping with its seasonal trend. Then, proponents of the naira would like to see the US dollar index return to below 103 index points.
The Bureau of Labor Statistics of the Labor Department said on Friday that 199,000 new jobs were created for nonfarm payrolls in the United States last month.
The unemployment rate dropped to 3.7% in the world’s largest economy employment report, which may have prematurely raised expectations in the financial markets that the U.S. Federal Reserve would start lowering interest rates in the first quarter of 2024.
Following the data, traders of short-term U.S. interest-rate futures on Friday reduced their bets that the Fed will begin reducing interest rates in March 2004 and now believe that a May start to rate cuts is more plausible.
The markets reduced their prior pricing by roughly 60% possibility of a March start to Fed rate decreases to just under 50%. The U.S. employment report raised doubts in the minds of the financial markets about the Federal Reserve’s ability to reverse course and start lowering rates as early as the first quarter of 2024.
Though these are only one month’s worth of data, the market is wary since they won’t likely affect the result of the FOMC meeting next week, especially if the CPI figures the next week continue to trend lower.
The markets would need to see a string of reports of a similar nature before concerns could be fully voiced, as the Fed is unlikely to be overly concerned by the strength of the labour market as it is being reported yesterday.