Naira Steadies at N415.07 as FX Spread Nears 40% Again

Naira Steadies at N415.07 as FX Spread Nears 40% Again

Naira steadies at N415.07 today at investors and exporters foreign exchange (FX) window but declined at parallel market due to spike in demand for the local currency.

Consequently, the gap between official and parallel market foreign exchange rates or the FX spreads is nearing 40% after naira loses weight in the parallel market on Wednesday.

A higher FX spread will continue to keep currency speculators in business, MarketForces Africa gathered from investment bankers. Naira has seen steady gains against the black-market rate last month after CBN pumped dollars to banks.

The trend was short-lived as a higher spread between official exchange rate and black market offering has kept currency speculators in business, though banks still sell dollars to private users with eligible needs at N412, according to some banks that spoke with MarketForces Africa.

Unfortunately, despite a healthy external reserves position which printed at $41.215 at the end of November, dollar supply has receded while demand continues to rise. In October, foreign investors were trapped in the Nigerian economy due to the inability to get dollars out invested in the stock market.

The international monetary fund also advised the monetary authority to adopt a unified market-clearing FX rate to attract foreign investors, but analysts think the multilateral lender is asking for near impossible due to local dynamics at play in Nigeria.

Stanbic IBTC –HIS Market purchasing manager index for November released today shows unfavourable exchange rate in Nigeria impacted manufacturers production costs negative, thus dampened private sector performance.

Channel check shows that parallel market traders exchanged Nigerian local currency at N572 while investors and exporters window printed at N415.07, according to data from FMDQ Exchange.

The exchange rate in the Nigerian Autonomous Foreign Exchange Fixing window has been steadied at N415.07 over the past week. On that note, some analysts think naira has found a new price since it keeps hovering between N410 and N415.07, while it has stayed at the latter end of the currency curve in recent times.

Last week, the Nigerian Autonomous Foreign Exchange Fixing (NAFEX) rate traded within the range of N404 – N444 to a dollar but closed at N415.10.

This points towards depreciation of 0.2% or N0.7 in the week while the window appears to be steady in the first two trading sessions this week, Coronation Research said in a note.

In the forwards market, foreign traded within the range of N411 – N455.9 to a United States dollar. However, in the 1-month contract, FX depreciated by 0.1% week on week to close at N415.9.

Meanwhile, in the 3-month contract, the local currency weakens 0.1% to the week to close at N421.2 per dollar. In the retail secondary market intervention sales (SMIS) market, the foreign exchange spot rate remained unchanged to close at N430.0.

Coronation Research said in a note that in the parallel market, the Naira closed at an average of N567 last week, thus estimating that the gap between the NAFEX and parallel market rate is 36.6%.

Based on data from the FMDQ, NAFEX turnover showed a weekly increase from USD67.4 million to USD215.5 million on Friday.

Over the past week, analysts noted that the Investors and Exporters foreign exchange window recorded inflows of US$344.1 million with the CBN accounting for 33.9%, FPIs accounting for 3.8%, non-bank corporates accounting for 41.4%, and others accounting for 20.9%.

The grossing came as Nigeria’s external reserves decreased by 0.3% or USD107.1 million to US$41.3 billion, according to Coronation Research note. 

Analysts maintain the view that the FGN’s USD4.0 billion Eurobond issuance and the allocation from the International Monetary Fund’s (IMF) Special Drawing Right (USD3.4bn) bode well for FX reserves.

As such, Coronation expects the NAFEX rate to trade range-bound N412 – N420.0 per dollar in the near term.  Turning to the Chinese Yuan (CNY), according to data from the CBN, the Naira remained unchanged in weekly comparison to close at N64.4/CNY. # Naira Steadies at N415.07 as FX Spread Nears 40% Again

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