The naira’s value weakened against the US dollar in Nigeria’s autonomous foreign exchange (FX) market as demand for foreign currencies outpaced supply.
Data indicated a significant decrease in the Central Bank of Nigeria’s (CBN) supply of US dollars in the official window, which dropped by over 14% month-on-month. This comes as the CBN prepares to launch a test run of its automated FX trading platform in December 2024.
The new platform aims to boost market confidence and curb speculative trading. Despite implementing various FX-enhancing strategies over the past year, the CBN has struggled to achieve sustained results.
Due to ongoing FX shortages, the naira continues to depreciate against the US dollar and other foreign currencies. According to data from the FMDQ platform, the naira recently declined by 0.61%, closing at ₦1,676.90 per US dollar in the official market.
The exchange rate deteriorated further following the CBN’s sale of $77 million to authorized dealer banks last week. Although external reserves have risen, CBN’s contribution to FX inflows in the official market dropped by 14.4% in October, based on FMDQ data.
In the parallel market, the naira ended at ₦1,725 per dollar, as demand for invisible FX payments eased. Meanwhile, the 1-month forward contract declined by 1.2% to ₦1,699.95 per dollar. However, 3-month and 6-month forward contracts appreciated by 1.3% to ₦1,732.09 and 1.0% to ₦1,848.62, respectively. The 1-year forward contract also saw gains, rising by 3.0% to ₦2,024.79 last week.
Analysts predict continued pressure on the naira, citing sustained demand and the CBN’s limited intervention capabilities, along with subpar inflows from foreign portfolio investors.
FMDQ data showed that total inflows into Nigeria’s Autonomous FX Market reached a five-month high in October, rising by 40.2% to USD3.04 billion from USD2.17 billion in September.
However, local inflows fell by 7.5% month-on-month to USD1.69 billion, attributed to declines in collections. The CBN’s inflows also decreased by 14.3%, alongside a 30.6% drop from individuals and an 8.6% reduction from non-bank corporate sources.
Analysts warn that limited CBN inflows could strain overall liquidity, possibly undermining market confidence and increasing pressure on the naira.
Elsewhere, oil prices climbed over 2% following OPEC+’s decision to delay a planned output increase by a month. Brent crude reached $74.86, and WTI rose to $71.28. Gold prices also surged amid U.S. election uncertainties, with gold trading at $2,742.10 per ounce as investors anticipated possible contested election results and monitored the upcoming Federal Reserve policy meeting.
