Naira Rate Weakens on Liquidity Squeeze, FX Spread Widens
The naira exchange rate closed at N1,331.2027 to the US dollar (USD) at the Nigerian foreign exchange market (NFEM) on Friday, up from N1,326.5192, translating to a N5 decline in the local unit’s value at the official market.
Transactions were executed between the week’s low of N1.324 and high of N1,334.5000 per dollar, driven by strong foreign demand and fluctuating FX supply.
At the last trading session on Friday, the sovereign unit depreciated 0.11% in the official market to N1,331.28 and weakened 0.36% in the parallel market to N1,390.
As a result of the exchange rate movements, the official-parallel market spread widened to N58.72 from N55.15 to the US dollar previously, Meristem Securities Limited reported.
Interbank market activity was uneven, with signals that demand outpaced supply last week.
Interbank FX turnover spiked, mainly driven by forex demand, and was sufficiently met by liquidity at the official window, though with a gap the Central Bank refused to close.
Soft but strained FX liquidity triggered local currency repricing against Western currencies, especially the dominant US dollar, during the trading session.
Interbank FX turnover reached a weekly peak of $262.120 million on Tuesday, while US dollar volume fell to a low of $84.217 million on Thursday.
Reflecting a lack of significant FX intervention, the naira closed the week N5 lower for international transactions than in the previous period.
Still, Broadstreet analysts maintained a bullish outlook for the local currency, with the year-end projection shifting to N1300 per dollar from N1350 due to the latest round of exchange rate appreciation.
The outlook for the local unit is positively anchored on rising external reserves. Nigeria’s gross external reserves accelerated to about $54.7 trillion, the highest in 18 years, buoyed by reduced demand for oil imports and elevated hydrocarbon revenue.
Analysts explained that the CBN says the NFEM rate is derived from a volume-weighted average and serves as the official exchange rate for the day.
