Posted by By Ayodele Aminu on
The naira yesterday lost its three-week stability at the Dutch Auction System (DAS) following a surge in demand for foreign exchange.
The naira yesterday lost its three-week stability at the Dutch Auction System (DAS) following a surge in demand for foreign exchange.
The naira which had remained stable at N132.83 per United Statesâ?? dollar since June 15, 2005, lost 2 kobo to close at N132.85 to one dollar at the close of business yesterday.
The reverse was however the case for the US dollar against other major currencies as it succumbed to profit taking for a second day yesterday. The dollar slipped 0.2 per cent to Y106.65 against the yen and 0.4 per cent to $1.8313 against sterling, although it was little changed at $1.2269 against the euro.
At the DAS yesterday, 55 banks on behalf of their customers demanded $170,485,710.80 from the apex bank, indicating an increase of 12 per cent or $16.58 million over the $153,896.874 requested in the previous trading day (last Thursday). This figure is also about 53 per cent over the $100 million offered by the CBN last week Tuesday.
Given the above-stated scenario, the CBN was yesterday compelled to increase the amount of forex it offered banks by some 20 per cent, from $100 million at the last trading day to $120 million yesterday.
In spite of the persistent rise in demand, the banking watchdog yesterday refused to increase the amount of forex it sold to banks. It sold $116,532,583.60 yesterday indicating a decrease of $13 million against the $130,222,587.96 of the last trading day (last Thursday).
Cumulatively, the $116,532,583.60 sold to banks by the banking watchdog yesterday, brings to $5.083 billion the total amount of foreign exchange that has been sold to banks by the CBN since the beginning of this year.
Similarly, the $120 million offered to banks Monday brings the total amount of foreign exchange that has been offered to banks by the CBN this year to $4.05 billion.
At the export proceeds market, the average naira exchange rate at the close of work yesterday stood at N133.80 per one US dollar.
At the parallel market, the average naira exchange rate was N139 per dollar at the close of business yesterday.
Meanwhile, with speculators having built extreme long positions in the dollar the greenback was always vulnerable to position squaring at some point. With the bad news from the collapse of the EUâ??s constitutional treaty now largely priced in, traders appear to have decided that yesterday was as a good a day as any to bank some profits.
â??A general unwind of speculative long dollar positions looks to be underway after the substantial gain for the dollar in recent weeks,â?? said Derek Halpenny, senior currency economist at Bank of Tokyo-Mitsubishi.
Some also adjudged comments from Alan Greenspan, the chairman of the US Federal Reserve, as dovish for US interest rates and thus bearish for the dollar. Mr. Greenspan appeared to play down the â??conundrumâ?? of US long-term bond yields remaining low even as short-term rates rise, suggesting that factors such as economic weakness and low inflation expectations could keep long-term yields low.
â??Greenspan described the theory that low bond yields may be a warning of low economic growth as â??credibleâ??, seemingly a new departure for the Fed chairman who generally emphasises the positive aspects of the outlook,â?? said Adam Cole, senior currency strategist at RBC Capital Markets.
The upshot was that the dollar slipped 0.2 per cent to Y106.65 against the yen and 0.4 per cent to $1.8313 against sterling, although it was little changed at $1.2269 against the euro.
Sterling derived some support from a modest re-setting of carry trades as those exiting long-dollar positions appeared to plump for yield instead.
This was enough to outweigh soft UK economic data. Halifax bank reported a 0.6 per cent month-on-month fall in UK house prices in May, a â??surpriseâ?? that â??could re-ignite concerns that a sharp housing market correction could yet occurâ??, said Howard Archer, economist at Global Insight,.
Moreover the British Retail Consortium reported like-for-like sales fell 2.4 per cent in May, following Aprilâ??s 4.7 per cent decline, although total sales, a more accurate measure of the strength of consumer demand, did rise 1.4 per cent.
Despite a broad consensus that the data flow increased the prospects for an autumn rate cut, sterling gained 0.3 per cent to £0.6700 versus the euro.
Chris Towner, consultant at risk manager HIFX, said the breach of the £0.6735 barrier was a key technical factor that opened the way for the euro to slide to £0.66.
Mr. Towner saw the UK economy remaining healthy as long as unemployment stayed low, potentially allowing sterling to rally to $1.90 against the dollar.
The Australian dollar, 0.6 per cent stronger at $0.7694, the New Zealand dollar, 0.8 per cent firmer at $0.7142, and the South African rand, 0.8 per cent better at R6.6525 to the dollar, all benefited from the return to favour of the high yielders, as well as strength in prices for commodities such as copper.
The yen also made gains, pushing to a fresh 11-month high of Y130.69 against the lackluster euro. The main driver was a modest ratcheting up of Chinese revaluation talk ahead of this weekendâ??s meeting of G7 finance ministers, to which China has been invited.
The Norwegian krone rose 0.2 per cent to a fresh two-year high of NKr7.8523 to the euro, taking its gains since May 20 to 3.4 per cent, thanks to a barrage of strong data. Non-oil GDP growth came in at 0.9 per cent in the first quarter of 2005, well above expectations, while manufacturing output rose 2.2 per cent in April and the current account surplus spiked higher.
â??Market players had little need of additional reassurance that the Norges Bank will embark upon a rate hike cycle when it next meets on June 30. Yet reassurance is undoubtedly what the releases have provided,â?? said Neil Mellor at Bank of New York.