The naira, the indigenous currency of Nigeria, reached N1520 in the official window on Thursday, crossing a fresh red line in its most recent fatal spiral. Hope for a rebound is dwindling due to the ongoing negative trend in the currency rate.
Due to the naira’s 40% decline in official window value during the first half of the year, businesses had to reduce operations and create broader, broken balance sheets. The majority of analysts held similar views, stating that inadequate FX liquidity and growing demand for US dollars were the key drivers of the market’s declining exchange rates.
“Nature abhors vacuum,” LSintelligence Associates said it is either the system supplies FX or generates inflows in a sustainable manner of kissing lower exchange rates goodbye.
Still, the Central Bank of Nigeria (CBN) maintains that the local currency is grossly undervalued, while forces of demand and supply appear to have pegged the fx rate much higher. Fitch Ratings projected that the naira would end the year at N1450 per US dollar, while Goldman Sachs, in its rush hour FX projection, set N1,000 per greenback.
In its ‘April fool display of strength’, the naira led global currency as the best performing. Exchange rates were near N1,000 per US dollar at both the informal and official currency markets. Since ‘April Fool’ gain, the naira has continued to lose strength, a few days after the apex bank denied that the authority used external reserves to defend the local currency.
According to data from the FMDQ, spot FX data suggests that the pressure on the naira has continued unabated. The naira closed at ₦1,520.24 per dollar, a 0.50% decline from the previous close.
Some analysts attribute the pressure on the naira to speculative activities and rising US demand. In the parallel market, the naira depreciated by 0.99%, ending the day at an average of N1,529 per US dollar.
In the global commodity market, oil prices steadied on Thursday. Brent crude futures edged up 0.77% to $87.29 a barrel, and U.S. West Texas Intermediate (WTI) crude futures gained 0.64% to $83.73 per barrel.
