The Nigerian naira gained N26.62 against the US dollar in the official foreign exchange market as the Central Bank of Nigeria (CBN) strengthened the supply side. The local currency has seen an increase in demand in a market with low inflows across to satisfy an eligible requisitions.
However, as the official exchange rate gained, the gap between autonomous and parallel market rates widened sharply to N88. The exchange rate in the parallel market worsened to N1740 per US dollar amidst seasonal demand for import payments.
The Apex Bank planned to launch an automated FX trading platform in December to improve confidence and forex market transparency. The move is to remove issues in FX delivery to the right sources for eligible payments.
Last week, as part of an effort to keep naira falling in check, the CBN sold about $144 million to authorised dealer banks in the range of N1640 and N1650. The latest spot rate pricing suggests the CBN has seen the end of its price discovery after devaluation. Still, exchange rate convergence remains an illusion, perhaps a tall ambition over unharmonised policy for parallel and official markets.
A sustained FX liquidity shortage had plunged the exchange rate to N1,689 per US dollar at the Nigerian autonomous foreign exchange market earlier in the week before it recovered post-FX sales to authorised dealer banks.
In the past, the CBN has always offered subsided spot rates at its FX auctions to redirect the exchange rates in the official and informal currency markets. Supporting the weekly gain, AIICO Capital Limited said a notable influx of capital from foreign portfolio investors was directed towards high-yielding government securities.
On trading pattern, activity level at the Nigerian autonomous FX market surged as average turnover rose by 154.6% week on week to close at $527.5 million, Afrinvest Limited said in a note. Analysts said trades at the autonomous FX market were consummated between N1,609 and N1,698.50 last week amidst mixed outings in the FX forward market.
The naira rates remained flat across the 1-month forward FX contract at N1,722.70, while the 3-month FX contract settled at N1,793.40 per US dollar. The forward fx contract for the 6-month period appreciated by 0.1% to N1,902.65, while the 1-year forward contract gained +0.1% to N2,129.07 per US dollar.
Analysts at Cordros Securities Limited said in a note that naira’s volatility is likely to continue as FX demand continues to outstrip supply. “We highlight that CBN’s continued market interventions are unlikely to stabilise the naira in the near term, given the weak autonomous FX inflows,” the firm stated.
Nigeria’s gross external reserves improved to $40.24 billion, the highest level seen since January 2022 amidst uncertainties in the global commodities market. Last week, oil prices decline due to an oversupply and a strong dollar impacting the market.
Brent crude is priced at approximately $71.58 per barrel, while WTI is around $67.61. In a similar trend, gold prices are set for their largest weekly drop in more than three years, as anticipation of less aggressive interest rate reductions by the U.S. Federal Reserve strengthened the dollar, reducing gold’s appeal to investors. #Naira Gains N26.62 on Dollar as CBN Sells $144m to Banks Naira Depreciates Ahead of 2-Week Automated FX Trading Trial
