The Naira is set to witness further stability against the Dollar if Nigeria’s foreign reserves can increase to $45 billion, says financial analyst.
According to Lukman Otunuga, a foreign exchange analyst with FXTM, rising foreign reserves should provide the extra ammunition needed by the Central Bank of Nigeria (CBN) to defend the Naira against external risks in the form of trade tensions. “Nevertheless, the nation still remains exposed to oil price volatility given how crude exports account for over 90 per cent of exports earnings and over 70 per cent of government revenues. However, there is a threat of reserves falling given how oil prices have depreciated roughly 5 per cent over the past month. Falling reserves have the potential to impact exchange rate stability, inflation and economic growth,.
“However, the Naira will witness further stability against the Dollar if Nigeria’s foreign exchange reserves increase towards $45 billion in August,” he added.
On the global scene , he noted that escalating trade tensions are set to dominate market sentiment in the week ahead following the explosive developments on the US-China trade front last Friday.
“Beijing announced it would apply additional tariffs of between 5 per cent to 10 per cent on $75 billion of US imports from September. US President Donald Trump wasted no time in counterpunching against retaliatory tariffs announced by Beijing, vowing to hike US tariffs on $250 billion of Chinese imports from 25 per cent to 30 per cent starting on 1 October. He also said planned tariffs on the remaining $300 billion worth of Chinese goods due to start on September 1 will now be 15 per cent instead of 10 per cent.
“This bombshell development will most likely fuel concerns over escalating trade disputes between the world’s two largest economies threatening global growth and stability. Investors are seen maintaining a safe distance from world equities and riskier currencies while rushing to safe-haven assets such as bonds, Gold and the Japanese Yen as risk aversion intensifies,” he noted. He also foreseen tradebtensions, Brexit, global growth concerns, developments in Europe and falling oil prices to remain on investors radars. “The Dollar is positioned to benefit from safe-haven flows as market uncertainty accelerates the flight to safety, while the Euro and Pound are seen pressured by political and economic risks.