In the forex market, the scarcity of US dollars keeps the naira exchange rate at a premium. The local currency to US dollar exchange fell to N1,562 in the official window, following a modest weekly increase previous week.
Exchange rates fell on Monday despite a sizable gross external reserves balance. The Central Bank of Nigeria’s (CBN) FX sales trend reflects a concerted effort to maintain the net FX balance stable.
According to analysts, significant quantities of the country’s foreign currency savings have been covenanted or pledged as collateral in a variety of transactions, including forex swaps and oil-backed loans.
While the authority has consistently laid claim that FX inflow has improved, exchange rate trouble has persisted, and analysts foresee a bleak outlook for the naira. In a survey of top investment analysts, there is general consensus that the naira must be defended if the exchange rate has to be recalibrated at all.
But the CBN appears to have a reason for intermittent FX sales. The authority re-introduced the retail Dutch auction system in August, 2024. Since first auction sales in August 8, the apex bank appears to have “jettisoned” the idea of disbursing as much as $1 billion to boost liquidity.
FX auctions under Yemi Cardoso, the CBN governor, have been intermittent, and quite reactive in nature. Past moves revealed that the CBN intervened only when the naira is about to cross N1,700 per US dollar – causing the apex bank to take immediate action, especially with accretion in the external reserves.
CBN retail Dutch auction may be operated without specific dates, times, or circumstances known to the market, analysts said. In the foreign exchange market, the naira depreciated by 1.37%, closing at ₦1,562.66 per US dollar at the official market. Seasonal demand for the US dollar heated up in the official market at the beginning of the week.
This caused the local currency to give up gains recorded last week on the back of FX market intervention sales. Foreign currency traders reported that the exchange rate closed at ₦1,655 to the US dollar in the parallel market amidst sustained pressures.
Analysts said the CBN will remember to sell US dollars to Bureau de Change (BDC) operators when the exchange rate in the parallel market is about to cross N1,700. In the global commodities market, oil prices fell on the back of weak demand from China.
The latest report shows that the Brent price dropped by 0.86% to $73.85, while the WTI price decreased by 0.93% to $70.34. Conversely, gold reached a record high due to positive market sentiment following the U.S. Federal Reserve’s interest rate cut and geopolitical tensions, even though the dollar strengthened.
The market price of gold settle around $2,652.40 per ounce on Monday.
