The naira increased by more than 7% to N1,539.65 against the US dollar in the official foreign exchange (FX) market as a result of the Central Bank of Nigeria’s (CBN) decision to reset exchange rate direction.
On Wednesday, market participants were greeted with unexpected US dollar sales to authorised dealer banks, as efforts were made to keep the exchange rate from crossing the N1700 band.
According to spot FX data from the FMDQ platform, the naira rose by 7.05% to N1,539.65 in the Nigerian Autonomous Foreign Exchange Market (NAFEM) after the central bank spent approximately $20 million to purchase the local currency.
Today, the CBN intervened in the market, selling about $20 million at rates between N1,530 and N1,540 to authorised dealer banks to increase FX liquidity in the official window. The NAFEM rate traded within the range of N1,499-NN1,668, closing at N1,546.5 in the spot market last week.
This points towards an appreciation of +2.9% or N46.9 week on week, according to Coronation Research analysts. The investment firm said based on its channel checks, in the parallel market, the naira closed at an average of N1,664 per US dollar.
This widened the gap between the NAFEM and the parallel market rate to 8%, raising the risk of speculative trading activities in the forex market. According to data from FMDQ, total NAFEM turnover increased by +4% or USD44.5 million to close at USD1.2 billion on Friday.
Analysts said there was an inflow of US dollars into the official window in total sum of USD 543.1 million. Following its FX auction sales to banks last week, the CBN accounted for 6.4% of the total inflow.
Foreign portfolio investors (FPIs) contributed 12.3% of the total inflows in the official window. Also, non-bank corporate businesses accounted for 41.2% of the sum on the supply side, with an additional 34.8% FX boost from exporters, and ‘others’ accounted for 6%.
In the global commodities market, oil prices edged lower in anticipation of the Federal Reserve’s upcoming decision on interest rates, which is not expected to provide much support. As of the latest report, Brent prices declined by 0.77% to $73.13, while US benchmark WTI prices dropped by 1.00% to $70.48.
In contrast, gold prices rose due to a weaker dollar and investor caution ahead of the U.S. Federal Reserve’s expected decision to initiate a monetary easing cycle. Currently, gold is trading at around $2,597.70 per ounce.
