Nigerian Naira Weeps on Official Market

strong dollar demand Naira

By Lukman Otunuga

There was no love for the Naira as the local currency tumbled to an all-time low against the dollar in the authorized markets.

The sharp selloff was triggered by ongoing dollar shortages which continued to suffocate the economy at a time when global recession fears remained rife.

On the parallel markets, the domestic currency traded around N615 to the dollar – more than 40% weaker than the official rate.

The Naira’s woes were worsened by the selloff in oil prices which raised fears about export earnings and government revenues.

A handsome chunk of Nigeria’s income comes from oil sales, so a drop in the price of the global commodity could force the country to cut back on spending during a fragile period.

The naira may be destined for further pain on both the official and parallel markets thanks to rising inflation, growth concerns, and an appreciating dollar.

Emerging market currencies could experience more pain if the pending Fed minutes strike a hawkish note. At its June meeting, the Fed raised interest rates by 75 basis points, its biggest rate increase since 1994. The minutes should provide more insight into the internal discussions over the decision.

All eyes will be on the US jobs report on Friday. Markets expect the US economy to have added 250,000 jobs in June, while the unemployment rate is seen holding at 3.6%.

Should the headline NFP meet or exceed market forecasts with the unemployment rate holding steady or falling, this could soothe US recession fears.

Alternatively, a lower-than-expected headline NFP figure coupled with a higher-than-3.6% unemployment rate could fuel fears around the US economy bound for a recession down the road.

Lukman Otunuga is a Senior Research Analyst at FXTM

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