By Lukman Otunuga, Research Analyst at FXTM,
External influences may impact the Nigerian Naira this week, with investors keeping a very close eye on any further -turmoil with emerging market currencies after a very troublesome past couple of weeks.
The Naira may take some guidance from how investors view emerging markets generally, with particular attention being paid towards how the Lira reacts to the latest Turkish GDP reading and the general threat of further trade tariffs from U.S. President Donald Trump. The indications from early Asian trading that both the Indian Rupee and South African Rand have resumed the week under weakness against the Greenback suggests that buying sentiment towards those currencies belonging to markets with high account deficits remains limited. However, with Nigeria boasting a current account surplus, the Naira may be slightly insulated from the brutal sell-off that has rattled EM currencies.
Markets on high alert as Trump ramps up trade threats
Investors across the globe entered the trading week adopting a cautious approach after President Trump doubled down his China tariff threats on Friday.
In a move that has eroded U.S.-China relations even further, Trump threatened tariffs on another $267 billion worth of Chinese goods. With the United States already poised to slap tariffs on $200 billion worth of Chinese goods and Beijing reiterating threats to fight back, the U.S.-China trade war could reach dangerous heights. The growing fears of an all-out tit-for-tat trade war between the world’s two largest economies are likely to fuel risk aversion, ultimately punishing global stocks and emerging markets.
Focusing on emerging markets, weakness is set to remain a recurring theme amid global trade tensions, a broadly stronger Dollar and prospects of higher U.S. interest rates. With turmoil in Turkey and Argentina triggering contagion fears, appetite for emerging market assets and currencies is likely to continue diminishing. In the EM currency space, the outlook remains tilted to the downside in the near term, especially for those currencies with high current account deficits.
In the commodity markets, Gold has -again struggled to find any support despite escalating U.S.-China trade tensions denting investor confidence and promoting risk aversion.
The bearish price action witnessed in recent weeks continues to highlight how Gold’s trajectory remains heavily influenced by the Dollar’s performance. With King Dollar spoiled by expectations of higher U.S. interest rates and safe-haven demand, this could mean nothing but pain and misery for zero-yielding Gold. It is worth noting that the Dollar has snatched away a fair chunk of Gold’s safe-haven allure with investors turning to the Dollar in times of uncertainty. Focusing on the technical picture, bears wrested back control after prices secured a weekly close below the $1,200 psychological level. Sustained weakness below this level could encourage a decline towards $1,180.