When persistent demand for the US dollar started to put the Central Bank of Nigeria’s (CBN) commitment to not defend the local currency to the test, the value of the naira fell precipitously across FX markets.
The unpredictability of exchange rate projections in both official and informal markets has increased, with a negative outlook resulting from Nigeria’s FX liquidity crisis.
The naira has been declining steadily since the authorities’ reaffirmation of its willing seller and willing buyer in April because of the ongoing scarcity of US dollars in the foreign exchange markets. The naira finished at ₦1,561.98 per US dollar at the Nigerian independent foreign exchange market, down 1.92% from the previous close.
FX analysts maintained that FX liquidity, or the volume of US dollars available at the official window remains sole determinant of spot rate pricing. For third weeks in a roll, the naira has come under intense pressures while the gross external reserves continue to surge.
Inflows into the nation’s gross external reserves lifted the gross balance above $35 billion on Monday, the level seen last in June, 2023 when flood of US dollar accretion boosted the CBN FX reserves balance.
In the parallel market, the naira depreciated by 1.96%, ending the day at an average of ₦1,559 per US dollar. The depreciation of the local currency in the black market was attributed to rising foreign currency demand by invisible FX demand for international payments for goods and services.
“We expect volatility to persist”, AIICO Capital Limited said in an update on Wednesday. In the global commodity market, oil prices rose today as U.S. inventories declined, while OPEC sees solid demand supported by stronger economic growth this year.
As a result, Brent prices increased by 1.03% to $85.53, while WTI prices increased by 1.38% to $82.53. Additionally, gold prices rose by 0.10% to $2,365.00 per ounce at the time of this report.
The American greenback stormed through the forex board, ravaging virtually every rival currency’s valuation on Wednesday amidst uncertainties over US Fed rate cut in Q3-2024
