The sporadic FX market innovation sales to increase liquidity caused the Nigerian naira to drop by roughly 2.5% against the US dollar, sending it to the bottom of the currency market curve.
The ongoing foreign exchange market liquidity issue made the naira weaker than the US dollar in both the official and informal currency markets. According to the apex bank monetary policy committee, a narrower spread between the different foreign exchange market segments is a sign of enhanced market efficiency and price discovery, which lowers the likelihood of arbitrage and speculation.
The naira lost 2.45% of its value against the US dollar on Friday, trading at ₦1,586.71 as opposed to N1,591 per greenback, according to data from the FMDQ website. The effects on the exchange rate at both official and informal markets subsided after the CBN started selling foreign exchange to authorized dealers, usually within a day.
A channel check revealed that the naira lost 1.94% of its value in the parallel market, closing the day at an average of N1,575 per US dollar. FX traders are left in the dark about Apex Bank’s stance on exchange rate movements. At a seminar, CBN Governor Yemi Cardoso declared that the naira was incredibly undervalued.
The statement triggered fair value predictions across Broadstreet, while Goldman Sachs stepped into the ring with a rather optimistic exchange rate of N1000 per US dollar projection. Fitch Ratings reset the record as the global rating agency predicted that the naira-to-US dollar exchange rate would end at N1,450 in 2024.
Other naira bulls have also supported the apex bank’s claim that the local currency is overvalued. At the end of the monetary policy committee meeting on Tuesday, the authority noted the narrowing spread between the various FX segments of the market, calling it an indication of price discovery and improved market efficiency.
The apex bank accepted that the narrow FX gap between spot rates has reduced opportunities for arbitrage and speculation. The monetary authority believed that the increase in the level of external reserves would further build confidence for a more stable exchange rate and thus urged the Bank to explore available avenues to improve inflows, especially through diaspora remittances.
It appears that the CBN has accepted an exchange rate band of N1500 to N1600 as an acceptable level by praising near exchange rate unification within the band at its committee meeting. MarketForces Africa reported that price discovery is a process that determines market prices, mostly through interactions between buyers and sellers.
FX market data showed that the naira has been weakening since the beginning of the year while the Nigeria’s foreign reserves continue uptrend due to revenue inflows from NNPCL trades collected by the apex bank.
The World Bank loans and African Import-Export Bank oil-backed loan tranches have also boosted the external reserves to 17-month high. In the global commodity market, the price of crude oil rebounded today, ending a three-day decline. Brent prices rose by 1.07% to $81.88, while WTI prices increased by 1.16% to $77.85. Furthermore, the price of gold went up by 0.65% to $2,422.60 per ounce.
