Naira Regains Strength Against Overbought US Dollar
Rising demand for the US dollar has kept the naira in a cage for most part of the year. Amidst gory predictions, Nigeria’s local currency, the naira roared deep at the official market after losing 14% due to increased demand for the US dollar on Thursday.
Technically, the US dollar hit an overbought range which caused a reversal in the naira exchange rate on Friday. The level of demand for forex undercuts aggregate US dollar supply amidst a slowdown in the Central Bank of Nigeria (CBN) market intervention.
The exchange rate peaked near N997 per US dollar at the official forex market during the week, drawn closely to the parallel market rate of N1,110.
At this level, analysts said it becomes risky to speculate the direction of the naira in both markets. For days, the open market rate has appreciated against the US dollar over improved sentiment that greeted the CBN’s FX backlog repayment.
“The authority would have consolidated on that position as a matter of urgency to bring exchange rates together. But then, the question is where would the FX supply come from?
“At $33.4 billion, gross external reserve appears to be sufficient enough for the apex bank to fuel the local currency energy demand. Unfortunately at the time, there is a question mark on the true external reserve position.
“What is clear is that net FX reserve is overstated – and there are large FX obligations on it that may be nearing maturity”, an expert who prefers not to be mentioned explained to MarketForces Africa.
Data from FMDQ showed that the naira depreciated by 12.2% to N996.75 at the Nigerian Autonomous Foreign Exchange Market (NAFEM) on Thursday.
However, the exchange rate clawback losses on Friday. FX market data showed that the Naira appreciated by 21.73% to N780.14 to the US dollar from N996.75 per dollar the previous day.
In the parallel market, the Naira also appreciated by 1.75% to N1,120 per dollar as demand pressures eased after the previous day’s resurgence.
The Economist Intelligence Unit have a negative view about the local currency exchange rate predicted to sell above N1,063 on its recently adjusted exchange rate forecast.
“We have revised our exchange-rate forecast to front-load a larger devaluation in 2025, to reflect a widening gap between the official and parallel-market exchange rates. We expect another attempt at exchange-rate convergence that year, meaning a larger correction.”
“We have adjusted our average exchange-rate forecast for that year to N1,068.3:US$1, from N914.4:US$1 previously. As our forecast for continued currency losses over time has not changed, the projected rate is also now weaker for later years”, the Economist Intelligence Unit said in a report.
EIU posits that a larger devaluation will have limited pass-through, given the size of the parallel market, but its forecast for average inflation in 2025 has been revised up by two percentage points, from 15.1% to 17.1%.
Nigeria’s FX reserve settled lower for the first time in 4 weeks, as the gross reserves position fell by USD44.39 million week on week to close at USD33.42 billion.
In an update, Cordros Capital said total turnover at the market decreased by 7.4% to USD545.89 million Thursday, as trades were consummated within the N700.00 – N1, 100.
In the commodities market, Brent crude price increased by 1.36% to $81.1 per barrel, while the West Texas Intermediate (WTI) crude oil rose by 1.19% to $76.64 per barrel. Nigeria Receives N14.38T from Extractive Sector in 2Yrs –NEITI
