Daily analysis 29.12.2015

The raw materials currencies remain under pressure. Devaluation of the Nigerian naira is more and more possible. Due to no stronger catalysts of changes, the zloty will probably remain stable during following days.

Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.

• 15.00: S&P/CS index of the real estates market in the 20 American cities (estimations: +5.6% y/y).
• 16.00: Conference Board consumers' sentiments index (estimations: 93.8 points).

Is the Nigerian currency on its way to devaluation?

Problems of the countries which export energetic resources increases with the price of oil remaining within the limits of 36-37 USD per barrel. It had the biggest impact on the rouble within the past few days. Today the USD/RUB pair approached the area of 73. This means that the Russian currency lost almost 12% of its value within a month.

Since mid 2014 (this is when the price of oil began to reduce) the rouble lost more that 50% of its value to the dollar, and according to the Bloomberg agency's ranking it is the worst out of 153 currencies. However, it is worth noticing that apart from the emerging markets' currencies, the Norwegian krona and the Canadian dollar also experienced significant losses. They are at the end of the G10 currencies ranking with respectively 30% and 20% of losses within one-and-a-half year.

During the past months we had some serious changes on less popular currencies. The Kazakh tenge and the Azeri manat also lost a half of their value to the dollar within one-and-a-half year. On the other hand, there are currencies which lost relatively little. One of them is the Nigerian naira (NGN), which lost only 20% to the dollar.

Speculations regarding the NGN devaluation have been appearing for several months. At the beginning of February 12-month forward contracts for the USD/NGN were estimated for 280, whilst the current rate was within the limits of 200. However, pressure on the naira wear off decreased along with the rebound on oil in June, and it dropped to the area of 230-240.

Meanwhile, the Nigerian government introduced restrictions concerning import of some products, including rice, in order to decrease the demand on the currency. Difficulties in purchasing the currency were also caused by the development of illegal trade, and quite controversial methods of fighting against it. In August, the Financial Times wrote that “the Nigerian government recommended cutting down trees which grow along side the capital city's streets, in order to block (with them – author's footnote) the illegal currency exchange”.

Despite the fact that it was possible to keep the relation between the naira and the dollar on the level of 200, it is likely that depreciation of oil below 40 USD will force the devaluation. According to the official data of the Nigerian Statistical Office export in the third quarter of 2015 expressed in the local currency, was by 50% lower than at the same time one year before. Also, the surplus on the trade account decreased by almost 80%.

On the other hand, the International Monetary Fund (IMF) expects that at the end of 2015 Nigeria will record a deficit on the current account worth approximately 1.8% of the GDP. In the past years it was a surplus within the limits of 4% of the GDP. Thus, we can expect that the devaluation is very possible, and its scale can be even bigger than it is indicated by the forward contracts. It is also possible that it will be more than 30% to the dollar, just like in the case of the Azeri manat.

Few words about the foreign market

Situation on the EUR/USD market remains relatively stable. The main currency pair is trying to make a rebound above 1.10. Even if it does succeed, the likelihood that this movement will continue is unlikely. Especially, if the American stock market remains stable at the beginning of the new year, and data from the American labour market are close to the recent readings.

Zloty remains stable

The national currency remains relatively stable, and the changes on the basic currency pairs are symbolic. The majority of movements on the EUR/PLN is within the range of 4.24-25, and this situation will probably not change during the following hours. Currently the market is more focused on the matter of future interest rates. Statements from the candidates for the future Monetary Policy Council members should be the catalyst of possible changes on the PLN during the following days.

Also the global matters should not cause any bigger changes by the end of the year. Today's readings on the USA should be neutral for the zloty. Their significance is relatively small in comparison to the flood of data planned for the second week of January. Thus, the stabilisation on the national currency market remains the base case scenario.

Anticipated levels of PLN according to the EUR/USD rate:

Anticipated GBP/PLN levels according to the GBP/USD rate: