– by Lukman Otunuga
In an encouraging development, inflation in Africa’s largest economy fell for the fourth consecutive month in July.
Consumer prices rose 17.4% from a year earlier, lower than the 17.8% witnessed in June and below the 17.5% estimates in a Bloomberg survey.
While other major countries across the world are grappling with rising inflationary pressures, Nigeria seems to be experiencing a period of cooling prices. This is a welcome development for the Central Bank of Nigeria and offers more room to leave interest rates unchanged for the time being in an effort to stimulate economic growth.
USD on the rise after Fed taper steps
We wrote earlier about how the FOMC Minutes would offer clues on when the bank might start tapering its bond purchases. Well, officials confirmed that inflation was now comfortably above their average 2% target and one or two more strong job reports will now be required for “substantial progress” to be made in the economy.
The Fed is still split on timing, but most members judged tapering could start this year. The minutes do not seem to set up a taper as early as next month. But the timetable is well within the consensus on Wall Street. This means with the bumper July payrolls already working their magic (and notably after these minutes), a solid August report could see a taper pathway announced at the September meeting.
Markets reacted quite modestly to the minutes initially. But this morning, dollar bulls are emboldened and have pushed to new long-term highs. The DXY breached the March top at 93.43 so a strong weekly close is probably needed to really rubber stamp the next leg higher for the greenback. Bulls will aim for last year’s November peak at 94.28, while long-term buyers may have the September high at 94.74. in their sights.
Oil sinking on broader market selloff
Commodities and oil have come under more pressure as at August 19, 2021 with Brent off nearly below $67. The spread of the Delta variant is clouding the demand picture. Output data from China also showed the least crude is being processed by Chinese refiners in 14 months. No doubt OPEC+ will be keeping their eye on prices and the demand side. The group recently left its forecasts unchanged and any rollback in the easing of production cuts could spark ire from the US.
Regarding technicals, May lows look like next major support at $64.60 with the 200-day moving average just below $64.
*Lukman Otunuga is a Senior Research Analyst at FXTM