The Nigerian naira has started the week on a strong note against the US dollar, with the local currency trading at N1,485.5 per dollar in the Nigerian foreign exchange market.
This development comes as the US dollar index fell 0.22% to 97.90, extending losses for a second session amid concerns over a potential US government shutdown.
The naira’s recent surge can be attributed to its increased popularity as a carry trade pair, with investors taking advantage of Nigeria’s high interest rates, which have remained above 27% in recent months.
However, this trend may reverse as the Central Bank of Nigeria cuts interest rates, with a 0.5% reduction last week and potential further cuts this year.
From a technical standpoint, the naira has formed an inverse cup-and-handle pattern, which frequently results in more upside.
A move below the cup’s lower side at N1,476 per dollar would indicate further upside, possibly reaching N1,400 per dollar soon.
The naira’s price action has also been influenced by the recent intervention by the chairman of the Naira for Crude Technical Committee and the Dangote refinery’s decision to resume sales of gasoline denominated in naira.
The naira is projected to stabilize within the range of N1,450 to N1,550 per dollar, although there could be a negative swing if the price of oil falls below $70 per barrel.
In the informal market, currency traders are buying dollars at N1,485 per dollar and selling them at N1,505 per dollar.
Persecondnews reports that the US dollar’s weakness can be attributed to the looming government shutdown, as Congress struggles to pass a funding bill before the fiscal year ends on Tuesday.
Markets are bracing for a possible shutdown that could impact the release of key economic data, including the non-farm payrolls report.
According to Bob Savage, head of markets macro strategy at BNY, a government shutdown would likely hamper the market’s ability to correctly price the course of the Federal Reserve’s easing cycle.
With the US dollar’s weakness and the naira’s strong fundamentals, the local currency is likely to maintain its momentum in the coming days.
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