Naira buoyed by trade optimism and rebounding oil prices

The Naira entered Tuesday’s trading session in a steady fashion amid optimism over US-China trade talks and rebounding oil prices.

Although a majority of emerging market currencies were impacted by a stabilizing Dollar, the Naira stood out from the pack by holding gains of around 358N on the parallel exchange.

With the Dollar seen weakening in the medium term on expectations over the Fed taking a pause on rate hikes and Oil rising from trade hopes, the Naira remains buoyed.

As the first trading month of 2019 gets underway, investors will be keeping a close eye on the inflation figures scheduled for release this Monday, January 14. Although signs of easing inflationary pressures will be a welcome development for the Nigerian economy, consumer prices are expected to rise on increased government spending.

With the Central Bank of Nigeria expected to maintain status quo on interest rates this month, all eyes will be on the presidential elections in February.

Dollar vulnerable to Fed rate pause bets

Dovish comments from US Fed Chair Jerome Powell last Friday effortlessly sent the Dollar tumbling against a basket of major currencies. Although the Dollar was initially boosted by December’s blockbuster jobs report, this was dampened by Powell’s softer language towards tightening monetary policy.

With Powell stating that the Fed “will be patient” and flexible towards raising rates, expectations jumped over the central bank taking a pause on monetary tightening this year. With the Greenback extremely sensitive to Fed hike speculation, this development is seen weakening the currency further.

The improving risk sentiment amid US-China trade hopes will be another factor sending the Greenback lower in the short- to medium-term.

In regards to the technical, the Dollar Index is under pressure on the daily charts. Sustained weakness below 96.00 is poised to open a path back towards 95.70 and 95.50, respectively.

Commodity spotlight – Gold

Gold prices fell on Tuesday despite trade optimism helping risk sentiment. The primary factor behind the yellow metal’s decline is based on a stabilizing Dollar.

However, with the Dollar heavily pressured by expectations over the Fed taking a pause on rate hikes and domestic growth fears, zero-yielding Gold has the potential to shine.

With US President Donald Trump scheduled to publicly address the nation on his border plans this evening, the speech will most likely impact Gold. Technical traders will continue to closely observe how prices behave above the $1,280 region.

If the upside momentum holds, the next key point of interest will be at the $1,300 psychological level. Alternatively, sustained weakness below this level is likely to open a path back down towards $1,272.