The old red line of N1,490 per US dollar has been reached by the naira. On Monday, when exchange rates crossed fresh red lines that they had never crossed before, pressure on the Nigerian naira grew throughout the foreign currency market. The amount of US dollars that market participants reported today was not met by the FX supply in the market.
Nigeria has a persistent lack of US dollars due to the swapping of rapid credit transactions for hydrocarbon sales, which make up around 90% of export receipts.
The apex bank’s assertion that the local currency is drastically undervalued has caused the local currency to depreciate more than Goldman Sachs, Financial Derivatives Company, and Renaissance Capital originally predicted, despite rising naira bulls’ projections.
At the global level, analysts at Goldman Sachs and Fitch Ratings differ on the naira amount required to obtain the US dollar under their 12-month estimates.
Goldman Sachs last predicted that the exchange rate would recalibrate to N1000 per US dollar, while Fitch Ratings expects the rate to close the year at N1,450 per greenback.
In April, the naira won a trophy as the best performer across the world. The period was greeted by strong FX inflows from foreign portfolio investors, and the Central Bank of Nigeria (CBN) subsided US dollar sales to Bureaux de Change operators.
The naira has not survived US dollar dominance in the forex market since the apex bank halted FX sales in the informal currency market while maintaining a willing buyer, willing seller model at the official window.
The FX liquidity challenge has been a major issue facing exchange rates in the informal and formal currency markets. Based on historical patterns, exchange rates improved along with CBN market intervention. However, the apex bank adopted the willing buyer, willing seller FX model to allow free trade with the intervention of the regulator.
Data from the FMDQ Securities Exchange, where the daily FX spot rate is quoted, showed that the naira depreciated by 0.31% to N1,490.20 US dollars at the Nigerian Autonomous Foreign Exchange Market.
On the parallel market, the exchange rate weakened slightly to N1,475 per US dollar as invisible demand continued to climb. Last week, the local currency depreciated by ₦2.81 or 0.19% week on week to close at N1,485.53 compared to ₦1,482.72 recorded at the close of last week.
In May, US dollar demand was high in the FX markets, despite increased inflows from offshore players and frequent interventions by the CBN. The interventions included three OMO auctions with a total allotment of approximately ₦1.92 trillion, AIICO Capital said in a report.
The average turnover in May was $279.67 million, showing a 2.67% increase compared to April. Today, oil prices continue their upward trend as traders consider a potential rise in demand, offsetting the strengthening of the dollar as well as increased geopolitical tensions in the Middle East.
