Last week, the naira traded at N740.38 after an invisible hand increased FX supply in the Investors and Exporters window. Despite the fact that the Nigerian National Petroleum Corporation Limited’s $3 billion loan from the African Export-Import Bank had delayed, the exchange rate had recovered.
However, when the global oil market boomed, multinational oil corporations’ sales increased foreign currency availability via the Investors and Exporters FX window, resulting in substantially lower demand per US dollar.
According to several FX analysts, the apex bank increased supplies following a $331 million deposit into Nigeria’s external reserves last week. Crude oil prices increased by 10.6 million barrels in August, following an unexpected fall in US stocks.
Also, production cuts by the Organisation of Petroleum Exporting Countries and its allies (OPEC+) overshadowed concerns of weaker demand due to stalling economic recovery, especially in China. As such, the average Brent crude oil price rose 6.9% in August to $84.64 barrel per litre, according to global market data tracked by analysts.
Consequently, Nigeria’s FX reserves recorded the first accretion after sixteen consecutive weeks of decline, as the gross FX reserves increased by USD 224.39 million to close at USD 33.95 billion. The total volume of US dollars transacted or total turnover at the Investors and Exporters window decreased by 12.1% to USD367.47 million up till Thursday, as trades were consummated within the N701.00 – N800.00.
In the forward market, the naira forward rates for one month contracts deprecated by 0.1% to N791.85, 3-month contracts dropped by 0.3% to NGN812.06 and 6-month contracts weakened by 0.6% to N842.73. The one-year contracts forward rate also plunged by 1.2% to N907.97 per US dollar.
In the parallel market, the local currency depreciated to N918 from N915 at the beginning of the week due to rising demand for invincible users. Some FX traders believe that the exchange rate gain at the official market was driven by improved foreign exchange supply from the CBN via the Investors and Exporters (I&E) window.
They also saw the possibility of slower demand for the US dollar at the official market, leading to increased pressure at the parallel market and speculation about potential CBN-led Naira devaluation.
Elsewhere at the FMDQ Securities Exchange (SE) FX Futures Contract Market, the local currency was downbeat against the US dollar across contract tenors. At the FMDQ Securities Exchange (SE) FX Futures Contract Market, the value of the open contract declined 11.3% to US$5.6 billion in August 2023.
Analysts said this was partially due to the muted interest in the available open contracts, and on the other hand, the settlement of the $708.5 million August 30, 2023 contract which matured during the month.
In September, Afrinvest said it expects the Naira to trade within a similar band across market segments as forex imbalance lingers on the back of weak FX reserves and sustained high demand in the parallel market. Elsewhere, the price of the Nigerian Bonny Light crude oil closed positive on Friday at $91.80 from last week’s $88 per barrel despite the likelihood for Saudi Arabia and Russia to deepen production cuts.
Cowry Research anticipates the naira to trade in the positive band to show further appreciation at the various FX markets barring any distortions while the apex bank maintains its interventions to shore up the naira value.
“While we understand that the NNPC’s crude repayment facility with the African Export-Import (AFREXIM) bank may have been put on hold, we highlight that there have been no further positive news flows regarding other measures to stem the slide of the naira.
“The preceding, in addition to the lingering low crude oil production and foreign investors remaining on the sidelines, are expected to weigh on FX supply in the near term.
“Consequently, we expect FX liquidity constraints to linger in the short term, ensuring the local currency pressures remain intact”, investment market analysts at Cordros Capital said in an update.
