Naira Launches Fresh Recovery, Foreign Exchange Rates Gap Slides
The Nigerian naira rebounded from currency shock, trading at N1400 at the official window, according to information obtained from FMDQ Securities Exchange. The latest rally at the Nigerian autonomous foreign exchange market was supported by improved foreign currency liquidity.
The forex market has seen riotous exchange rate movement due to FX liquidity challenges that occurred at the official window. This happened just after the Central Bank of Nigeria (CBN) denial about using the external reserves to defend the naira.
In the past days, gross external reserves have been growing, albeit, marginally when compared with previous drawdown by the authority to settle eligible foreign currency payments obligations. Analysts also said pressures tends to ease whenever the apex bank sold US dollar to Bureau de Change operators (BDCs) at managed rate.
“Manufacturers, Importers and other FX users often patronize BDCs for urgent foreign currency needs. This often raised demand level in additional to requests made by invisibles FX users”
On Friday, the naira exhibited strength against the US dollar, gaining 0.16% to close at N1,400.40 per greenback in the official market. At the parallel market, the Naira closed at N1,397 as demand pressures begin to ease.
Data from the Central Bank of Nigeria showed that gross external reserves climbed to $32.284 billion following week long FX inflows from remittances. In the global commodity market, crude oil prices experienced a decline, with the Brent crude falling by 0.58% to trade at $83.18 per barrel, and the West Texas Intermediate (WTI) crude oil also decreasing by 0.65% to trade at $78.44 per barrel.
The Nigerian foreign exchange market was thrown into a frenzy after weeks of relative calm and rapid appreciation in the exchange rate. According to the CBN, Nigeria recorded its best FX turnover in 7 years, a feat, which culminated in the Naira’s emergence as the best-performing currency globally.
In a shocking turn of events, the Naira halted its gains and depreciated by 19.6% last week, Vetiva Capital Management Limited said in a commentary note.
Analysts attributed the development to the profit-taking activities of foreign portfolio investors, following the record about 44% appreciation of the Naira in Q1-2024.
“We also regard fears concerning the about $1.8 billion depletion of reserves as a plausible reason for the depreciation. However, we expect interventions from the CBN to moderate FX pressure over the near term, while inflows of about $4 billion from multilateral institutions and commercial creditors allay currency fears within the next three months” analysts at Vetiva Capital Limited stated. Investment Firm to Build Overweight Positions in GTCO, ACCESS
