Nigeria’s local importers and enterprises with foreign currency liabilities will continue to experience difficulties in the currency markets, with a substantial daily depreciation recorded in the official window on Tuesday.
The Nigerian naira has experienced another record daily exchange rate loss in the foreign currency market due to persistent mismatches between supply and demand for US dollars.
In the official FX market, the local currency depreciated or lost value by more than 7% every day. The naira movement dashed hopes for an exchange rate recovery in the short to medium term.
Economic uncertainties and the monetary policy strategists have become major contributors to the ongoing exchange rates worries across FX markets. According to FX spot data obtained from the FMDQ platform, the exchange rate worsened by more than 7% as demand, which appears to be seasonal in nature, overshadowed the volume of US dollars supplied.
The naira depreciated by 7.12%, closing at ₦1,656.49 per US dollar at the official market. The latest exchange rate plunged came at a surprise given that the apex bank sold US dollar to banks last week,
And also, the Central Bank of Nigeria’s (CBN) FX auction sales to Bureau de Change (BDC) operators had near zero effects on exchange rate at the informal segment. Critics maintained that FX liquidity has remained downside to exchange rate recalibration in the currency markets. The CBN moves to defend the naira continues to face hiccups.
The apex bank has been unable to maintain stance on FX auctions using a particular approach. Moves to defend the naira has remained intermittent. Analysts said the apex bank, understandably, appears to be under pressure from using external reserves to support the naira.
Despite $900 million in FX inflows from the recent domestic US dollar bond sales, the market has only seen the exchange rate worsening. Data from the CBN showed that Nigeria’s gross external reserves balance climbed to $36.942 billion, translating to more than 12 months of import cover based on latest trade statistics.
The huge chunk of the balance in the nation’s external reserves have been pledged against various deals – swap and oil backed loans etc. In the parallel market, the naira closed at ₦1,635 to the US dollar, down by N5 from N1630 spot rate previously quoted.
Elsewhere, the U.S. crude oil traded above $71 per barrel on Tuesday. Optimism is growing that the Federal Reserve will cut interest rates, and production is still disrupted in the Gulf of Mexico.
Brent prices increased by 1.12% to $73.87, while WTI prices climbed by 1.45% to $71.54. However, Gold prices eased slightly after reaching an all-time high in the previous session as the dollar and Treasury yields edged higher. Currently, gold is trading at around $2,591.10 per ounce.
