Naira Sees Bumpy Ride as FX Reserves for Fourth Week
The naira closed the week negative after a bumpy ride in the foreign exchange markets. The local currency remained under pressures due to an intermittent back up from the Central Bank that weakened the supply side.
According to data from the FMDQ platform where daily spot rates are quoted, the Naira weakened against the greenback, trading at ₦1,598.56 per US dollar, a 0.29% depreciation from the previous close.
The demand pattern showed that companies and other participant at the Nigerian autonomous foreign exchange market saw an increase demand for foreign currency.
On the supply side, the US dollar volume available was insufficient to maintain naira value. This caused exchange rate to decline amidst expectation that the Central Bank of Nigeria (CBN) will conducted retail Dutch FX auction in September.
The apex bank has not sell FX to authorised dealers for three week since it re-introduced Dutch auction system. After strong US dollar sales to banks for onward disbursements, external reserve has been falling.
Nigeria’s FX reserves declined for the fourth consecutive weeks. On CBN platform, data showed that gross reserves level weakened by USD122.95 million to USD36.32 billion.
On weekly comparison, the naira depreciated by 1.8% to N1,598.56 per US dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM) as turnover declined.,
Total turnover at the NAFEM window declined by 28.3% to USD608.43 billion on Thursday, with trades consummated within the N1,499 – NGN1,615 band, Cordros Capital Limited said in a note.
In the forwards market, the naira rates depreciated on the 1-month contract but appreciated across the 3-month, 6-month and 1-year contracts.
One month forward contract depreciated by 0.1% to N1,624.90 per US dollar in the week. However, 3-month forward contract appreciated 0.7% to N1670:42 while 6-month contract gained 1.8% to settle at N1,750.35 per US dollar. In the forward segment, one year contract also appreciated by 3.6% to N1, 904.16 per greenback.
Analysts at Cordros Capital Limited expect currency pressures to persist due to limited FX supply, stemming from minimal CBN intervention and weak FPI participation.
Notwithstanding, we cite that successful completion of the domestic US dollar bond could bolster the CBN’s efforts in stabilizing the naira in the short term.
In the parallel market, the naira weakened by 0.93%, ending the day at an average of N1,620 per US dollar as demand rose above forex market supply.
At the start of the week, crude oil prices soared due to reports of production stoppages in Libya.
However, as more information became available about the actual impact on production, the prices began to stabilize. Brent oil decreased by 0.28% to $78.80 per barrel, while WTI declined by 1.26% to $73.89 per barrel. Additionally, the price of gold dropped by 0.02% to $2,545.70 per ounce. #Naira Sees Bumpy Ride as FX Reserves for Fourth Week
