The Naira is set to witness further stability against the Dollar after Nigeria’s foreign exchange reserves increased by $295.12m to $45.087bn in May.
Rising foreign reserves should provide the extra ammunition needed for the Central Bank of Nigeria (CBN) to defend the Naira against a tornado of domestic and external headwinds. Nevertheless, the nation still remains exposed to oil price volatility. It is widely known that Nigeria relies heavily on crude exports which account for over 90% of exports earnings and over 70% of government revenues. The fact that oil prices are sinking towards $55 today may lead to a fall in reserves in the coming months which has the potential to impact exchange rate stability, inflation, and economic growth.
Dollar blinks and loses hold on throne
Dollar bulls were nowhere to be found today despite risk aversion accelerating the flight to safety. Market fears over Trump’s trade disputes with Mexico and China negatively impacting the US economy are weighing on the US Dollar. While the Greenback still remains a prime destination of safety in times of uncertainty, the question is for how long? When keeping in mind how the Fed funds futures are currently pointing to a near 70% chance of a rate cut by September, the Dollar’s upside may be limited. In regards to the technical picture, the Dollar Index has the potential to sink back towards 97.50 if a weekly close below 98.00 is achieved.
Commodity spotlight – Gold
Gold is extended gains on Friday amid news of unexpected tariffs on Mexican goods, while ongoing US-China trade tensions continued to support safe-haven demand.
A depreciating Dollar is supporting the upside with prices trading marginally below $1300 as of writing. Market expectations over the Fed cutting interest rates in 2019 coupled with concerns over slowing global growth are likely to ensure Gold remains buoyed moving forward. Technical traders will continue to closely observe how Gold behaves below the $1300. A solid breakout above this point should signal a move higher towards $1324.
Oil set to register first monthly loss of 2019
Oil is on track to register its first monthly loss of 2019 with WTI Crude sinking towards $55 thanks to Trump’s newly announced tariffs on Mexico and concerns over rising US gasoline stockpiles.
It is becoming increasingly clear that oil markets remain highly reactive to news around supply and demand factors. Such market dynamics will frame the upcoming OPEC meeting in June as a pivotal event that will shape Oil’s outlook for the rest of the year. Even if OPEC+ decide to extend their supply cuts into the second half of the year, this may be overshadowed by concerns over US-China trade tensions impacting the demand for oil as global grows.
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