USD/NGN Price Forecast Q4 2020: The CBN Expected to Raise the Peg Again

The Nigerian Naira which started life in the 1970s, at an exchange rate of 2-1 against the GBP, is a pegged currency, but the peg has since been changed to the USD, since the US is Nigeria’s main trading partner. Following the fall in the crude Oil price, the USD/NGN was trading just below 200, which was the peg for this pair after the decline in the NGN. The Central Bank of Nigeria (CBN) announced that it would remove the peg, and the USD/NGN then surged to $ 354, before setting at $ 307, which seemed like a new peg.

That peg lasted until March this year, when the coronavirus breakout forced the CBN to move it higher to $ 360, and then up to $ 380 in July 2020, where it has remained since. Despite the weakness of the USD, this pair has been moving higher this year, which means that bullish is the only way to go for USD/NGN traders, although they should take inflation, which stands at around 13%, into consideration.    

Current USD/NGN Price: $

Recent Changes in the USD/NGN Price

Factors Affecting the USD/NGN

The Nigerian Naira is vulnerable to a number of factors. Since oil is Nigeria’s main export, their oil exports and the revenues that it generates drive the NGN. This is a great source of foreign exchange, and USD in particular, for the African state. Inflation in Nigeria is also a factor, since it affects the monetary policy decisions by the CBN. COVID-19 has had an impact everywhere, especially in developing countries. The USD has also performed negatively during these COVID times, while right now, the US election drama and the next stimulus programme from the US government are the most important factors for the USD.   

USD/NGN Live Chart

The NGN/USD Price Prediction for the Next 5 Years

Nigerian Naira – A Fundamental Analysis

As mentioned above, foreign currency reserves play a major role in the value of the Naira, particularly the USD in relation to the USD/NGN. The foreign reserves declined along with the oil prices early in 2020, and despite the rise to $ 40, the price still remains low. The prospects of oil moving much higher are low, with the top price projected at $ 50-55 at the most, since the new coronavirus measures in Europe and the US are increasing and the winter is expected to be gloomy.

The current situation has led to a 4% recession in Nigeria, while inflation has surged to 13.2%. This has led the CBN to move the peg higher, in order to devalue the currency, first from $ 307 to $ 360 and then from $ 360 to $ 380. However, the exchange rate on the black market is around 470 for the USD/NGN, which suggests that the CBN will probably increase the peg again to match that rate.

USD – Fundamental Factors

The USD has also been negatively affected by the coronavirus and the restrictions since March. It has been the weakest among major currencies, but it has still performed better than the Nigerian Naira, which is a risk currency, the opposite of the safe havens such as Gold. This tells us that when the USD starts to increase against major currencies, it will keep the pressure towards the upside for this pair. Right now, the USD is still waiting for the US election process to come to an end, which is why it has stagnated for most of November, while the final outcome of the elections will also be decisive for the next fiscal programme released by the US government. The USD will probably turn bullish for some time if the stimulus package is decent – similar in size to the previous one. Until then though, the USD is expected to be trading range-bound, and so is the USD/NGN.  

USD/NGN – A Technical Analysis – The 20 SMA has Caught up with the Price once Again

The USD/NGN was trading below 100 in the early 2000s, with a bias to the upside. Moving averages were providing support, but from 2004 until 2008, we saw a slight pullback, and the 20 SMA (grey) turned from support into resistance on the monthly chart. Then, at the end of 2008, we saw a jump during the global financial crisis, and the buyers have been in charge since then, with the pace of the uptrend increasing considerably. The 20 SMA turned into support again from 2009 until 2014, when the oil prices started their big reversal down.

USD/NGN moving up in steps

The USD/NGN jumped from 160 to 200 and settled there for some time, until the 20 SMA caught up with the price again. The CBN removed the peg for the first time back then, and this pair surged higher again, this time to 355, before settling at 307, until March this year, when the peg was put in place again, at $ 360, with the 20 SMA providing support once again, for more than two years.

 The higher Mas are adding top the 20 SMA as support on the weekly chart

On the weekly chart, we see that the 20 SMA has been helped by the 50 SMA (yellow) and the 100 SMA (green) at times. The moves here are clearer, with the first one, which was gradual, taking place in 2014-15, before the surge in 2016, and again in March 2020, when the 200 SMA (purple) just caught up, and once again in the first week of July. Now the 20 SMA has just caught up. If the lock-downs that were resumed in November should continue, the global economy will fall into recession again, sending oil prices down and the USD/NGN higher.