Lukman Otunuga, FXTM research analyst, says the naira will not benefit from a weakening dollar if oil prices keep declining at an alarming rate.
The dollar dropped into the negative territory on Wednesday after Jerome Powell, chairman, US Federal Reserve said that interest rates are just below neutral– meaning that it would no longer stimulate the economy.
In a market analysis on Thursday, Otunuga said the dwindling oil prices will “weigh heavily” on the naira and affect the implementation of the 2019 budget.
Oil prices hit their lowest levels in 14 months on Thursday, with US West Texas Intermediate (WTI) falling 0.84 percent to hit $49.89.
Brent crude was down 0.9 percent to trade at $58.57, the lowest recorded since October 2017.
“The Nigerian Naira may struggle to reap the full benefits of a weakening Dollar due to heavily depressed Oil prices,” he said.
“Although expectations of the Fed (US Federal Reserve) raising interest rates less than expected may reduce capital outflows, the Naira remains heavily influenced by Oil markets.
“With Oil prices sinking to a fresh yearly low today, this not only impacts government revenues, but economic growth and the nation’s ability to enact the 2019 budget which pegged the Oil price at $60 per barrel.
“If falling reserves result in the CBN (Central Bank of Nigeria) being unable to defend the Naira, this will weigh heavily on the local currency.”