Nigeria week ahead: US jobs report could affect naira

It will be another busy week for financial markets as investors grapple with trade tensions, Brexit, depressed oil prices and concerns over slowing global growth.

The week kicks off with the US ISM Manufacturing PMI for May which is projected to hit 53.0. Appetite for the Dollar is likely to take another hit if the PMI figures fail to meet market expectations.

Investors will be paying very close attention to Fed Chair Powell’s speech on Tuesday for fresh insight into the Fed’s monetary policy path.  Investors will be paying very close attention towards Powell’s tone, given how concerns are rising over trade tensions potentially impacting the US economy.

The biggest event risks this week will be the European Central Bank meeting and US jobs report on Friday. The Dollar could end up depreciating further if the US jobs report disappoints and fuels speculation over the Fed cutting interest rates this year.

Naturally, this will be good news for emerging market currencies with the naira falling into the category.

The economic calendar for Nigeria will be relatively light this week with the Stanbic IBTC Bank PMI scheduled for release on Thursday. Although the economic docket is light, external factors in the form of trade tensions, the dollar and most importantly oil prices will impact sentiment towards the nation.

Falling oil prices are set to place the Nigerian economy in a difficult position. It is widely known that Nigeria relies heavily on crude oil exports which account for over 90% of exports earnings and over 70% of government revenues.

A sharp decline in oil prices could threaten Nigeria’s economic recovery while disrupting exchange rate stability. The potential decline in foreign exchange reserves from lower oil is likely to weaken the naira consequently translating to rising inflationary pressures.

Consumers and businesses will feel the pain as inflationary pressures mount, while the drop in foreign reserves may complicate the Central Bank of Nigeria’s efforts to defend the Naira.

For Nigeria to insulate itself against such external risks, there needs to be a greater push on diversifying away from oil reliance to other sustainable sources of economic growth with Agriculture being one of several solutions.

Elsewhere, Gold is glittering as geopolitical risk factors and concerns over slowing global growth accelerate the flight to safety. This precious metal has turned bullish on the daily timeframe as is positioned to push higher should $1300 prove to be reliable support.

A vulnerable Dollar should inject bulls with enough inspiration to push Gold towards $1324 in the short to medium term.