Naira Reclaims Value as Nigeria Records FX Inflows
The Nigerian local currency, the naira, traded strongly against the domination of the United States (US) dollar across foreign exchange (FX) markets, according to market data. In the open market, the local currency also appreciated as demand pressure declined.
Nigerian naira gain was supported by a very moderate increase in external reserve. Last week, a total sum of US$25.17 million in foreign currency receipts pushed foreign reserves to US$35.28 billion.
According to data from the FMDQ platform, the naira appreciated to N462.23 versus the greenback at the official foreign exchange window as the supply side maintains a steady position. The exchange rate at the Investors’ and exporters’ FX window had climbed to N464 due to demand pressures.
The rate then improved as the Central Bank of Nigeria (CBN) stepped up market intervention to support the rate movement by boosting the supply side as foreign investors stay aloof.
At $35 billion, Fitch Ratings estimates that the country’s external reserves include about 30% FX swaps, thus lowering the buffer available for the monetary authority to sustain its market intervention.
Data from the forex markets tracked by MarketForces Africa showed that the Naira-British pound also ended in green, the same pattern was witnessed on NGN-JPY which closed positive on a 5-day average.
In the parallel market, exchange rate appreciated week on week to close at N739/$1 from N745 in the previous week on the back of increased dollar demand.
Last week, exchange rate in the open market swing on both sides as market players priced rates between ₦745- ₦750 levels all week. In the investors and exporters window, traders in the FX market kept bids between N461 and N467 on the back of a weakening dollar against peer currencies.
Meanwhile, the spot exchange rate remained unchanged at the Interbank Foreign Exchange Forward Contracts market, the rate has been stable at N462 per US dollar.
Oil price movement rebounded but was somewhat on course for another week of price decline as it traded at $74.75 per barrel on Friday in the midst of renewed US banking fears, and the surprise contraction in China’s manufacturing activities.
Bonny Light crude price plunged for another straight week by 15.02% or $12.72 week on week, to close at $71.99 per barrel from $84.71 per barrel amidst the persistent worries on oil demand. Analysts expect the naira to trade in a relatively calm across various market segments barring any market distortion and as the apex bank continues its weekly FX market intervention to defend the naira.
Though, estimates indicate that Nigeria will continue to face foreign currencies shortage until reforms come in the form of devaluation of the naira toward a market clearing rate.
CBN’s extensive use of foreign-exchange and import restrictions to manage external pressures, with multiple exchange-rate windows, and limited flexibility of the official window has sparked foreign investors’ exit from participating in the local market.
This results in severe foreign-currency shortages for the private sector, large divergence with the parallel unofficial exchange rate and has contributed to weak foreign investment and sizeable private-sector capital outflows over the past year, according to Fitch Ratings. #Naira Reclaims Value as Nigeria Records FX Inflows#
