Following a steep decrease in FX market turnover last week, the demand for US dollars outpaced supply, and the naira, the native currency of Nigeria, continued to weaken on Wednesday.
The naira fell to N1,483.02 per US dollar, according to statistics from the FMDQ Securities Exchange website, where official daily exchange rates are displayed. In addition, as the monetary authorities failed to support the local currency with sales of forex market intervention, the exchange rate deteriorated in the parallel market during the Central Bank of Nigeria’s (CBN) FX sales holiday.
The apex bank recently discontinued FX sales to Bureau De Change operators after introducing subsidized US dollar sales, which increased the local currency’s value to almost N1000 per US dollar. Since the CBN ask the BDCs operators to re-register, the naira exchange rate has run amok, hitting near N1,490 per US dollar in the official and parallel market with tiny gap.
Last week, the Nigerian autonomous FX market (NAFEM) rate traded within the range of N1,390 – N1,507 but closed at N1,482.7 in the spot market. This points towards an appreciation of +0.1%, or N1.3, week on week, as the World Bank foreign currency loan to Nigeria boosts investors’ confidence and douses speculative pressures.
In the forwards market, the naira traded within the range of N1,476 – N1,481.4, according to Coronation Research. Analysts said in the 1-month contract, exchange rate appreciated by +0.04% week on week to close at N1,499.7, while in the 3-month contract, fx depreciated by -0.2% to close at N1,548.7.
“Based on our channel checks, in the parallel market, the Naira closed at an average of N1,489/USD on Friday. Therefore, the current gap between the NAFEM and the parallel market rate is 0.2%”, Coronation Research said in its FX update.
According to data from FMDQ, total turnover at the Nigerian autonomous FX market declined by -29.2% or USD373.1 million, to close at USD902.9 million on Friday.
The volume of US dollars transacted declined at the official window despite an inflow of USD610.9 million last week. “There was no inflow from the CBN in the previous week,” analysts said. Foreign portfolio investors accounted for 32.1% of the FX supplied, non-bank corporates 34.7%, exporters 28.2%, and others accounted for 5.1%.
