The Nigerian naira performed mixedly in the foreign exchange market, with dropping external reserves and a weekly decline in US dollar volume. The exchange rate improved little in the official foreign exchange market but declined in the informal currency market.
Data revealed that gross foreign reserves continued to fall despite a string of sequential inflows that brought the balance to an 18-month high. According to data from the Central Bank of Nigeria’s (CBN) website, the country’s gross external reserves fell for the third week in a row.
The balance of external reserves fell by US$63.50 million week-on-week to US$36.44 billion, according to CBN platform statistics. Last week, the naira achieved its highest single-day appreciation of 3.1% on Wednesday, the best daily performance seen last on July 22, when it gained 6.4%, before closing the week at N1570.14 at the Nigerian Autonomous Foreign Exchange Market (NAFEM).
This showed that the local currency appreciated against the US dollar by 0.62% week-on-week, reaching ₦1,570.14 as demand for foreign currency in the economy by market actors.
Citing market data, investment banking firm Afrinvest Limited noted that activity level in the NAFEM window waned, as total turnover fell 29.8% week on week to $811.6 million. Cordros Capital Limited said trades were consummated at the window within the N1,470.00–NN1,603 band. In the forwards market, the naira rates depreciated across the 1-month and 6-month contracts but appreciated across the 3-month and 1-year contracts.
One month forward contract depreciated by 0.5% to N1,623.59 per US dollar. Also, Six months forward contract depreciated by 1.6% to N1,782.42 per greenback. However, Three months forward contract appreciated by 0.4% to N1,681.93, while one year contract rose by 1.6% to N1,972:27 per US dollar.
Despite the CBN’s FX retail auction, analysts highlight persistent demand pressures causing the naira to trade with high volatility during the week. “In the near term, we anticipate the naira will remain pressured owing to weak supply,” Cordros Capital Limited said.
Overall, exchange rate had a mixed performance against the dollar. Specifically, the Naira gained 0.6% against the US dollar to close at N1,570.14 in the official market. However, the local currency depreciated by 1.2% to close at N1,605.00/$1.00 in the parallel market.
The rates direction has widened FX gap to N35 on each US dollar, increasing risk of currency speculation.
In the global commodities market, crude oil prices declined this week due to a weakness in global demand. Overall, Brent oil decreased by 0.90% to $78.96 per barrel, while WTI declined by 2.43% to $74.79 per barrel. The price of gold increased by 0.40% to $2,547.90 per ounce.
