Naira Plummets as Markets Price in Zero FX Intervention
The naira plummeted as conditions in the foreign exchange (FX) market worsened across the currency markets. The local currency weakened sharply after it moved to reclaim value against the US dollar.
According to FX spot data from the FMDQ platform, the naira depreciated by 3.61% against the US dollar, closing at ₦1,637.59 per dollar. The huge daily depreciation of the local currency suggests mounting pressure from the demand side.
US dollar demand in Nigeria has continued to run ahead of foreign currency supply in FX market post naira devaluation. Some critics have always queried the wisdom behind the local currency devaluation, as it appears to a number of analysts that the current exchange rates may be true value of the naira after all.
The naira has failed to show signs of recovery since April, 2024, when it gave up all gains in a sweep. For failing to conduct a retail Dutch FX auction one month after, analysts told MarketForces Africa that the Central Bank of Nigeria (CBN) may boycott the market again.
“What I have seen with the current CBN leadership is policy inconsistencies. Don’t be surprised if the authority decides not to conduct FX auction in September.”. Conversely, in the parallel market, it appreciated by 0.60% to ₦1,645 per dollar. This followed a cap on spread per US dollar after $20,000 FX sales to BDCs at N1580.
In the global commodity market, oil prices trended lower on Tuesday, with Brent Crude at $69.53 per barrel and WTI at $66.23 per barrel. WTI crude fell to its lowest level since November 2021, after OPEC cut its demand forecast for the second time in two months.
The cuts are largely due to weaker oil consumption in China, driven by a surge in electric vehicle sales that is dampening traditional fuel demand. Last week, the NAFEM rate traded within the range of N1,400 – N1,665, closing at N1,593.3 in the spot market.
This points towards an appreciation of +0.3% or N5.2 week on week, according to Coronation Research. In the forward market, the 1-month forward FX contract depreciated by -2.2% week on week to close at N1,660.6, while the 3-month contract depreciated by -3.8% to close at N1,733.9/USD.
The gap between the NAFEM and the parallel market rate was 4.8% on Frida. According to data from FMDQ, total NAFEM turnover increased by +14.9% or USD150.7 million to close at USD1.2bn on Friday
The official FX window recorded an inflow of USD477 million. The FPIs accounted for 5%, CBN 0.2%, non-bank corporates 40.2%, exporters 29.8%, and others accounted for 24.9%. #Naira Plummets as Markets Price in Zero FX Intervention
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