April 6, 2022/CMC Connect BCW
Written on 28/03/2022 by Lukman Otunuga, Senior Research Analyst at FXTM
The next few days could be eventful for Africa’s largest economy despite the quiet domestic economic calendar.
At home, all eyes will be on the current account balance for the final quarter of 2021. During the third quarter of 2021, the country records a current account surplus of $3.7 billion. It is worth keeping in mind that the current account is part of the balance of payments. This is a key indicator that tracks trade in goods, trade in services, income, and current transfers. A positive current account means the nation earns more than it spends. A negative account means it spends more than it earns. Outside of Nigeria, this will be another busy week for global markets with ongoing geopolitical tensions, key economic data from major economies, and speeches from policymakers keeping investors occupied.
Over the weekend, the tired Naira weakened to N587 against the dollar with fears mounting over the local currency extending losses. Many fundamental factors have contributed to the instability of the Naira with dollar scarcity being one the biggest culprits. Some are predicting the Naira to weaken as low as 700 amid sub-optimal crude production, crude oil theft, and low export of goods. Such a negative development will pose have consequences on Nigeria’s fragile economic recovery and moderating inflationary pressures.
In other news, reports reveal that the Central Bank of Nigeria spent $13.1 billion in 11 years to settle Nigeria’s foreign debt obligations. The federal government’s borrowing spree and debt servicing are part of the many negative themes threatening Nigeria’s economy. According to reports from the Debt Management Office (DMO), Nigeria’s total public debt rose to N39.55 trillion as of December 2021. Excessive government debt levels can impact economic stability and pose ramifications for the strength of the currency in trade.
Focusing on the week ahead, there could be action across equity, commodity and stock markets due to the various fundamental themes influencing risk sentiment. Oil prices are under pressure due to concerns about demand in China, while gold seems to be waiting for a fresh fundamental spark. One of the major risk events may be the US jobs report on Friday which is estimated to print a headline figure of 450k. The unemployment rate is forecasted to tick lower to 3.7% – its lowest since the pandemic. A weak report could temper rate hike expectations, resulting in a weaker dollar.
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