The Nigerian naira fell to N774 per US dollar on Monday after $165 million in foreign exchange (FX) transactions at the Nigerian Autonomous Foreign Exchange Fixing (NAFEX) market fell due to a foreign currency shortage.
Despite the weakening of the local currency in June, the supply side has remained weak. According to experts, the country’s reactive approach to currency management has resulted in unforeseen market pressure on the native currency. In the parallel market, the naira fell due to a lack of supply and growing demand from FX users.
Due to the economy’s FX constraint, the Naira exchange rate at the Investors and Exporters FX window fell to N773.98 from N756.91. On the parallel market, however, the exchange rate depreciated by 0.52 to N960.
Naira woes at the parallel market deteriorated over the week with the exchange rate testing fresh lows at N960/$ with market feelers linking the development to demand from Nigerians planning to make school fees payments and travel expenses.
Analysts said strong growth in the demand for non-tradable services in the last decade has been the main driver of FX’s weakness. Last week, the NAFEX rate traded within the range of N720-N807.2 per US dollar but closed at N756.91, according to currency traders.
In its market report, Coronation Research said this points towards a depreciation of -2.8% or N20.3 over the week. In the forwards market, the naira traded within the range of N799.86-N910. Analysts noted the gap between the NAFEX and the parallel market rate closed the week at 26.2%.
According to data from FMDQ, NAFEX turnover decreased by 59% or USD164.9 million to USD280.6 million on Friday as weak external reserves kept the Central Bank of Nigeria (CBN) supply under check.
Nigeria’s external reserves decreased to USD33.3 billion as inflow from crude oil export remains underwhelming. Brent crude rose 1.01% to $94.88 per barrel, while WTI crude gathered more gains by 1.13% to $91.80 per barrel in the face of expectations for a tighter market and hopes of a revitalized China economy from stimulus measures.
Oil future edged higher on Monday and was driven by expectations for tighter supply in the final months of the year.