Naira on Edge as Markets Debate Retail FX Auction Schedule
In the forex market, the shortage of US dollars continues to keep the naira exchange rate at an edge. The local currency to US dollar rate depreciated to N1,562 in the official window, following a moderate weekly gain recorded last week.
With a low balance in the supply, exchange rates plunged on Monday despite a sizeable gross external reserves balance. The Central Bank of Nigeria’s (CBN) FX sales pattern suggests a deliberate attempt to keep the net FX balance sturdy.
Analysts said huge amounts from the nation’s foreign currency savings has been covenanted or pledged as collateral in various deals – fx swaps, oil backed loans, among others.
While the authority has consistently laid claim that FX inflow has improved, exchange rate trouble has persisted, and analysts foresee a bleak outlook for the naira. In a survey of top investment analysts, there is general consensus that the naira must be defended if the exchange rate has to be recalibrated at all.
But the CBN appears to have a reason for intermittent FX sales. The authority re-introduced the retail Dutch auction system in August, 2024. Since first auction sales in August 8, the apex bank appears to have “jettisoned” the idea of disbursing as much as $1 billion to boost liquidity.
FX auctions under Yemi Cardoso, the CBN governor, have been intermittent, and quite reactive in nature. Past moves revealed that the CBN intervened only when the naira is about to cross N1,700 per US dollar – causing the apex bank to take immediate action, especially with accretion in the external reserves.
CBN retail Dutch auction may be operated without specific dates, times, or circumstances known to the market, analysts said. In the foreign exchange market, the naira depreciated by 1.37%, closing at ₦1,562.66 per US dollar at the official market. Seasonal demand for the US dollar heated up in the official market at the beginning of the week.
This caused the local currency to give up gains recorded last week on the back of FX market intervention sales. Foreign currency traders reported that the exchange rate closed at ₦1,655 to the US dollar in the parallel market amidst sustained pressures.
Analysts said the CBN will remember to sell US dollars to Bureau de Change (BDC) operators when the exchange rate in the parallel market is about to cross N1,700. In the global commodities market, oil prices fell on the back of weak demand from China.
The latest report shows that the Brent price dropped by 0.86% to $73.85, while the WTI price decreased by 0.93% to $70.34. Conversely, gold reached a record high due to positive market sentiment following the U.S. Federal Reserve’s interest rate cut and geopolitical tensions, even though the dollar strengthened.
The market price of gold settle around $2,652.40 per ounce on Monday. #Naira on Edge as Markets Debate Retail FX Auction Schedule Naira Falls to N1,486 as FX Crisis Deepens
