Following its shock to the currency, the Nigerian naira recovered, trading at N1400 in the official window, as per data from FMDQ Securities Exchange. Improved foreign exchange liquidity helped the Nigerian independent foreign exchange market’s most recent surge.
The FX liquidity issues that occurred in the official window have caused chaotic exchange rate volatility on the currency market. This occurred immediately following the Central Bank of Nigeria’s (CBN) denial that the naira would be supported by utilizing foreign reserves.
In recent times, there has been a little increase in gross external reserves relative to the prior withdrawal made by the authority to fulfill qualifying foreign currency payments commitments. Additionally, analysts noted that anytime the top bank sells US dollars to Bureau de Change operators, pressure tends to lessen.
“Manufacturers, Importers and other FX users often patronize BDCs for urgent foreign currency needs. This often raised demand level in additional to requests made by invisibles FX users”
On Friday, the naira exhibited strength against the US dollar, gaining 0.16% to close at N1,400.40 per greenback in the official market. At the parallel market, the Naira closed at N1,397 as demand pressures begin to ease.
Data from the Central Bank of Nigeria showed that gross external reserves climbed to $32.284 billion following week long FX inflows from remittances. In the global commodity market, crude oil prices experienced a decline, with the Brent crude falling by 0.58% to trade at $83.18 per barrel, and the West Texas Intermediate (WTI) crude oil also decreasing by 0.65% to trade at $78.44 per barrel.
The Nigerian foreign exchange market was thrown into a frenzy after weeks of relative calm and rapid appreciation in the exchange rate. According to the CBN, Nigeria recorded its best FX turnover in 7 years, a feat, which culminated in the Naira’s emergence as the best-performing currency globally.
In a shocking turn of events, the Naira halted its gains and depreciated by 19.6% last week, Vetiva Capital Management Limited said in a commentary note.
Analysts attributed the development to the profit-taking activities of foreign portfolio investors, following the record about 44% appreciation of the Naira in Q1-2024.
“We also regard fears concerning the about $1.8 billion depletion of reserves as a plausible reason for the depreciation. However, we expect interventions from the CBN to moderate FX pressure over the near term, while inflows of about $4 billion from multilateral institutions and commercial creditors allay currency fears within the next three months” analysts at Vetiva Capital Limited stated.
