Naira Tumbles as Interbank FX Turnover, Deals Count Spike
The naira tumbled at the Nigerian foreign exchange market (NFEM) on Tuesday, as official trading data indicate that both interbank FX turnover and deals spiked simultaneously.
US dollar liqudity improved at the official window, and so was demand for foreign payment, a fragile equlibroum that dragged the value of the Nigerian local unit down amidst tight intervention from the Central Bank.
Daily data released by the authority showed that the spot FX rate depreciated to N1384.0755 per US dollar, representing a substantial decline from N1379.6504.
Forex market transactions were consummated between N1381 and N1386.9900 per dollar at the official window, which was a complete reversal from N1378 and N1381.5000 the previous day.
The local unit fluctuated against the greenback due to perennial FX liquidity squeeze at the official window, with total dollar volume hovering around $1 billion.
A look at liquidity dynamics shows that NFEM interbank FX turnover surged to $243.095 million, up 182% from $86.136 million the previous day.
The interbank deals among financial institutions or market makers also increased to 140 from 85 previously reported at the official window on Monday. This indicates a heightened rush of large-scale currency trading in the wholesale forex market.
Shifts in FX supply and demand triggered fluctuations in the NFEM window. Still, FX analysts maintained a positive outlook on the naira as gross external reserves continue to approach $52 billion.
Strong foreign reserves have supported market confidence, as foreign portfolio investors continue to flock to the fixed-income market.
Updated data from the Apex Bank showed that Nigeria’s foreign reserves edged higher to $51.845 billion at the beginning of the week, up from $51.769 billion reported last week.
Oil prices hit a one-month high, with Brent crude futures climbing above $86 a barrel Tuesday morning, after President Donald Trump said the U.S. would be “reimbursed” 20% on all cargo shipped through the strait “for any and all costs necessary to do the job of providing safety and security to this very volatile section of the World.”
Trump also said he would reinstate a blockade of Iranian ports, which U.S. Central Command said would go into effect Tuesday at 4 p.m. Eastern time.
On Tuesday, Trump said that the United States is pivoting away from an earlier threat of a “reimbursement fee” for ships going through the Strait of Hormuz.
The strait, Trump declared on Truth Social, “is open to ALL Ship traffic except for Iran,” pinning the blame for the restrictions on Tehran’s leadership.
“The U.S. would proceed with a blockade on Iran, he said, which would affect only “ships coming to and from Iranian ports, or carrying anything that has to do with Iranian cargo.”
