The Nigerian naira has continued to exhibit resilience in the black market, with the dollar showing signs of weakening. Traders have been speculating that the Federal Reserve has concluded its interest rate hikes, although the anticipation of crucial nonfarm payroll data has tempered the naira’s bullish performance.
In a surprising turn of events, after a rapid rebound and the breaking of the critical resistance level of N1,000 per dollar late last Thursday, traders on Binance’s P2P market witnessed the naira being traded at an impressive rate of N972/$.
A recent research report by Chainalysis revealed that Nigeria has dominated the peer-to-peer exchange volume in the cryptocurrency market. In 2022, Nigeria climbed to the 17th spot in P2P exchange volume, up from its 18th place ranking in 2021.
In contrast, the official market saw the naira reaching an intraday low of N1,018.6 against the US dollar on Thursday, November 2, at the official NAFEM window.
However, the release of significant nonfarm payroll data for October on Friday introduced challenges for the naira’s performance against the greenback. The Federal Reserve’s willingness to raise interest rates in light of resilience in the labor market could potentially counteract the dollar’s recent weakness.
Although the Federal Reserve is still open to raising interest rates this year, the final decision hinges on forthcoming economic data. Market indicators suggest some tension in the US Dollar Index’s recent rally, particularly as it hit a multi-month high last month. The US dollar index, comparing the US dollar to six other major currencies, stood at 105.9 index points on Thursday, slightly above its one-week low of 105.8 points. The index is predicted to decline by 0.4% this week, marking its third weekly decline since July.
The CME FedWatch tool now indicates a less than 20% chance of a December rate hike following the Federal Reserve’s pause on interest rates, down from 39% just a month ago. Nevertheless, the Fed has not completely ruled out the possibility of additional rate hikes, reflecting the strength of the world’s largest economy.
In a significant move, the Central Bank of Nigeria (CBN) has commenced the clearance of the backlog of foreign exchange (FX) forward contracts, a development expected to boost the naira and benefit the business community and the nation’s economy at large. Although the source of funds used for this purpose remains undisclosed, foreign airlines are also believed to be among the beneficiaries.
The CBN’s focus has been primarily on Tier 2 Nigerian banks and international banks, with over 75 to 80% of their foreign exchange forward contracts obligations cleared. Notable companies such as Citigroup ($72 million), Stanbic ($125 million), and Standard Chartered ($63 million) are among those receiving FX futures deliveries this week.
The Federal Government has also revealed plans to allocate $10 billion to settle FX obligations, support the country’s FX market, and stabilize the naira. Wale Edun, the Minister of Finance, has expressed confidence that FX liquidity will improve in the coming weeks, further mentioning advanced discussions with sovereign wealth funds willing to invest and provide advances to bolster the nation’s economy.
