LONDON (Feb 21): Nigeria's naira currency weakened on Tuesday against the US dollar in the non-deliverable forwards market as expectations of a devaluation grew, while the rand slipped too before a key budget speech by the finance minister.
Emerging equities held steady near 19-month highs, while currencies such as the rouble and the Turkish lira were also more or less unchanged against the firmer US dollar. Earlier in the day, the Philippine peso plumbed a 10-year low.
The spotlight was on Africa, with most attention focused on the naira after Nigeria's central bank effectively devalued the currency for private individuals while holding the official exchange rate at 305 per US dollar.
People can now access hard currency at a rate of 366 per US dollar to pay for foreign school fees and travel, though the black market rate is around 520.
Three-month naira-dollar NDFs weakened almost 6% while one-month NDFs traded 4% lower — their weakest levels since November, according to Reuters data. The naira also slipped 6% in the six-month NDF market, showing a rate of 395 per US dollar.
Nigeria has tried to make the exchange rate more flexible before, leading to a 30% devaluation last year, only to reimpose a quasi-currency peg.
"The story of a possible devaluation has come back as the latest moves seem to show a small entry towards to a weaker exchange rate," said William Jackson at Capital Economics.
"My worry is that they are not moving to a fully floating rate but to a more complex system of parallel rates, which will add to the confusion but won't help exporters."
Nigerian five-year credit default swaps traded at a one-year high of 618 basis points, according to Markit.
The rand, which has gained 5% against the US dollar this year on the back of firmer commodity prices, slipped 0.7% on jitters before Finance Minister Pravin Gordhan's speech.
Gordhan, respected by markets, has pointed to "green shoots" of growth in the economy but warned of a "difficult political year". Investors still fear that President Jacob Zuma wants to replace Gordhan in mooted cabinet changes.
"The markets will be looking to see what fiscal tightening will be undertaken to reduce the budget deficit, stabilise debt ratios and maintain the investment grade rating," Jackson said.
"What people also want to see is a realistic growth forecast as the consensus is increasingly bearish."
The South African central bank's leading business cycle indicator rose by 0.7% month-on-month in December as the price of US dollar-based commodity exports rose but this failed to lift stocks, which slipped 0.3%.
Bank stocks fell 1.3% as South Africa's competition watchdog warned it would seek maximum penalties in a probe into alleged rand rigging.
Some other emerging market currencies were able to make gains, with the recently devalued Egyptian pound trading just off three-month highs.
The Kazakh tenge firmed 0.7% to its strongest since December 2015, after gaining over 5% so far this year. The tenge has been buoyed by stronger oil prices — so much so that the central bank cut interest rates by 100 basis points on Monday.
Eastern European bourses enjoyed strong gains, with Warsaw up 1.4% and Bucharest up 0.8% to its highest level since June 2008.
The lower house of Romania's parliament will vote today on withdrawing a decree on graft prosecution rules which caused huge street protests three weeks ago. The government has already agreed to scrap the degree.
The gains carry on from strong performance in Asia earlier in the day when Chinese mainland stocks closed near three-month highs, helped by reports that pension funds will begin pumping money into the market.
South Korean stocks also closed near 20-month highs.