In a stunning turn of events, the Nigerian naira has been repriced positively against the dominant US dollar in the foreign exchange (FX). The official currency rate increased, while the parallel market declined due to supply and demand imbalances.
In the past week, the market has seen some moves that indicate increased interest in backing the naira versus the US dollar, threatening domination. The naira’s swift and substantial weekly rise was a result of the Central Bank of Nigeria’s (CBN) foreign currency market intervention.
Last week, the monetary authorities sold $121 million to authorized dealers banks to increase FX market liquidity amid persistent pressure on the local currency. With little effect in the illegal market exchange rate, the CBN had sold $20,000 at N1580 to Bureau de Change (BDCs) operators as US dollar volume at the informal currency remained tight.
FX inflows into the economy is expected to boost investors’ confidence following the completion of $900 million raised from Nigeria’s inaugural domestic US bond that was significantly oversubscribed due to juicy rate. The naira appreciated by 3% against the US dollar to settle at N1,546.41 on Friday, according to FX spot data from the FMDQ platform.
At the parallel market, the Naira depreciated 0.3% against the dollar to ₦1,650. Meanwhile, activity level in the Nigerian autonomous foreign exchange window improved by 6.2% last week to $1.3 billion from $1.2 billion in the prior week.
At the FMDQ Securities Exchange (SE) FX Futures Contract Market, the total value of open contracts of the Naira settled at $111.7 billion, according to Afrinvest Capital Limited.
The investment firm stated that there remain no changes, save maturity of contracts, given that the Central Bank of Nigeria (CBN) has now cleared all Non-Deliverable Forwards (NDFs) open contracts. The move came shortly after the CBN rendered contracts for tenors between one and twelve months inactive in response to reforms in the NAFEM window.
“We expect rates to trade within a tight band across different segments of the market as we remain confident of CBN’s ability to ensure system liquidity by sustaining FX interventions”, Afrinvest said in a note.
This week, Nigeria’s FX reserves recorded accretion, as the gross reserves level increased to USD36.865 billion, possibly reflecting inflows from the proceeds of the recently concluded domestic FGN US Dollar bond.
In the forwards market, the naira rate decreased across the 1-month and 3-month contracts, but increased across the 6-month and 1-year contracts. Forward contract for one month depreciated to N1, 668.65 per US dollar while three month contract falls by 0.2% to N1,738.32.
A forward contract for six months appreciated by 0.2% to settle at N1838.87 per US dollar, while contract for one year gained 1.1% to close at N2,052 per greenback. The naira is likely to remain under pressure despite recent efforts by the CBN to stabilize the currency, analysts at Cordros Capital Limited said in a note.
“We expect market demand may continue to outweigh supply given the CBN’s mild intervention and weak foreign portfolio investment (FPI) inflows.”
Elsewhere, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), Nigeria’s crude oil production, including condensates increased for the fifth consecutive month, rising by 2.4% to 1.57 million barrels per day in August from 1.53 mbpd in July.
Analysts said they attribute the improvement in the period to higher production volume recorded across the Forcados (up by +16.0%), Bonny (up by +6.4%) and Odudu (up by +4.6%) production terminals. There was a slide at Qua Iboe (-8.0%), Agbami (-6.4%) and Escravos (-4.4%) terminals last month, according to data released.
Despite the improvement, analysts at Cordros Capital Limited note that overall crude oil production remains below pre-COVID levels of 2.14 mbpd.
Analysts attribute this to the lingering effects of insecurity, infrastructure decay as well as low investment in the sector exacerbated by the exit of international oil companies (IOCs) and unresolved issues regarding the approval of oil asset transfers.
“While progress is still underway as regards the fight against crude oil theft and pipeline vandalism, we believe that challenges plaguing the sector still pose downside risks to crude oil production in the near term”.
Cordros Capital analysts maintained its average crude oil production estimate at 1.52 mbpd in 2024 as against 1.78 mbpd budgeted by the government.
