The Nigerian naira fell deeper into the ongoing exchange rate crisis as the foreign money shortage worsened. The majority of analysts’ estimates for the exchange rate outlook are positive, with the argument that the naira is significantly overvalued—though not as severely as the Apex Bank asserted.
This week, the naira shed N53 in two trading sessions to end at N1,653 in Nigeria’s autonomous foreign exchange market, indicating that the market may become hot in the absence of an FX auction.
The market predicts that the Central Bank of Nigeria (CBN) would sell US dollars to approved dealer banks in order to alleviate FX liquidity constraints in the official window. According to analysts, the naira exchange rate has reached a point that the Central Bank is concerned about.
FX spot data from the FMDQ platform showed that the naira depreciated by 3.11%, closing at ₦1,653.02 per US dollar at the official market on Tuesday. At the same time, the naira fell in the parallel market to close at ₦1,725 to the US dollar as FX demand for invisible foreign payments continues to outpace FX liquidity in the alternative markets.
In a note, FSDH observed that there has been an observable improvement in the sources of Forex inflows over the past quarters, yet FX pressures remain. Analysts noted that the economy recorded a trade surplus of US$8.9 billion in H1 2024, a 45.2% increase compared to US$6.1 billion in H2 2023, adding that the high-interest-rate environment has boosted portfolio investment inflows into Nigeria.
As a result, Nigeria’s external reserves have been rising, although this has come at the expense of a depreciating Naira. The CBN’s current focus on reserve accretion is aimed at boosting confidence in the FX market, but this posture is likely to shift in Q4 2024, FSDH said.
“Looking ahead to Q4 2024, we expect the exchange rate to close the year around N1,560/US$. With the festive season approaching and added pressure in the FX market, we anticipate an increase in Forex inflows, driven by hikes in policy rates and increased FX interventions by the CBN, aimed at maintaining a stable exchange rate”, the investment firm said.
Despite unsettled issues with the Nigerian authorities, analysts stay positive on naira for crude oil sales to Dangote Refinery. “The Naira for Crude Initiative, which kicks off on October 1st, 2024, is expected to further mitigate Forex risks,” analysts said, as they maintain a positive outlook for the Naira in Q4 2024.
Today, oil prices continued to rise as traders grew more optimistic about the stability of supply in the Middle East amid tensions between Israel and Iran. Brent crude increased to $75.85, while WTI rose to $72.24.
Meanwhile, gold reached a new record high, driven by safe-haven buying due to uncertainties surrounding the U.S. elections and ongoing conflicts in the Middle East. Currently, gold is trading at approximately $2,760.40 per ounce.
