Increasing FX Demand Sustains Naira Upslide

Federation Account Amasses Over ₦5trn In 6months- RMAFC

Because supply and demand factors were balanced by an unseen hand, the value of the Nigerian naira increased on foreign exchange markets. The US dollar was worth N791 in the Nigeria Autonomous FX market on Friday, according to data from FMDQ Exchange.

While the FX spot rate at the London Stock Exchange topped N1000, the value of the naira has surpassed N800 per US dollar in the official window. Following the naira’s depreciation, FX volatility surged as demand pressure caused the parallel market rate to reach N1,300.

With the monetary authorities lifting market mood through the reimbursement of FX backlog and the lifting of limitations on 43 products prohibited from obtaining foreign exchange, the exchange rate at the parallel market has improved.

The Naira fell by 6.17% to settle at N1,135 per dollar on the parallel market, reversing the previous optimistic attitude. An expert in the industry informed MarketForces Africa that individuals and corporations were observed to be directing seasonal foreign exchange demand towards Bureau de Change operators.

The market’s expectation that the Central Bank of Nigeria would hold off on raising interest rates due to a slowdown in economic development largely countered the pressure on the local currency.

The naira’s future is looking worse and worse, with a far larger decline possible in the next days and weeks. Forex specialists claim that both fundamental and technical variables are growing more unfavorable.

Nigeria’s gross reserves decreased by USD65.56 million to close at USD33.31 billion, according to a figure posted on the Central Bank’s website. Brent crude advanced by 2.19% to $79.12 per barrel, while the West Texas Intermediate (WTI) crude oil also increased by 2.15% to $74.47 per barrel.

Market data indicates that the US dollar was headed for its largest weekly drop for months against the euro, yen and franc on Friday. Forex traders sold in anticipation of almost 100 basis points of U.S. interest rate cuts next year. The USD index, which tracks the dollar versus a basket of six currencies drops, keeping a lid on the upside.

Analysts at Cordros Capital expect FX liquidity conditions to improve slightly, albeit still frail relative to historical levels, as it appears the CBN has regained its momentum regarding FX reforms.

“If the recent convincing actions by the policymakers to turn the tide are sustained, we expect the local currency pressures to ease”, analysts said in a note.

In the forwards market, the naira rates across the 1-month contract appreciated by +1.0% to N864.79, 3-month forward contract gained +0.1% to N889.78. Also, the forward contract for 6 months rallied by +0.1% to N917.14 while the 1-year contract depreciated by 0.8% to N976.61.

Moody’s said in a note that the unification of Nigeria’s official foreign exchange rates and effective currency devaluation come with short-term risk, but may have several longer-term credit positive implications.

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