Naira Sinks as FX Shortage Shifts Rate Nears ‘Fear Index’
The naira experienced strong negative price fluctuation in the foreign exchange (FX) market due to surging demand for import payments. The FX market was unable to meet the willing buyers US dollar demand due to a shortage in the official window.
The acute FX market shortage shifted exchange rate near the Central Bank of Nigeria’s (CBN) fear index, a level that triggered US dollar sales to banks or Bureau de Change to boost FX liquidity, based on past defensive actions of the authority.
“The CBN is most likely going to sell the US dollar to boost FX liquidity as exchange rate risks of crossing N1,700 line become feasible’, a financial expert said in a chat with MarketForces Africa FX tracker reporters.
According to FX spot data obtained from the FMDQ, the naira depreciated by 6.13%, closing the trading session at the exchange rate of ₦1,658.48 per US dollar at the official market.
Nigeria faces an acute shortage of US dollars in the economy on the back of overreliance on foreign inputs from corporate entities and other government US dollar price related deals.
The naira has touched a level that often triggered the CBN action. Some analysts said they expect the CBN to sell FX to authorized dealer banks this week to reduce exchange rate volatility.
Since August 8, the CBN has not conducted retail Dutch FX auctions; it resumed in 2024 as the apex bank continues to wage a subtle war against the dominant US dollar.
Past FX actions suggest that the CBN will defend the naira before the exchange rate crosses N1700 as today’s deadly spiral; signaling that the negative trend in the forex market has deepened.
The naira closed at ₦1,660 to the greenback in the informal currency market. The depreciating local currency witnessed demand pressure from invisible FX users for personal and business travel allowance.
Last week, the Nigerian autonomous foreign exchange market rate traded within the range of N1,500 – N1,672, and closed at N1,541.5 in the spot market.
This points towards an appreciation of +0.3% or N4.9 week on week, traders said. In the forward market, a 1-month contract appreciated by +1.7% to close at N1,639.5, and a 3-month contract appreciated by +1.4% to close at N1,713.7.
In the parallel market, the naira closed at an average of N1,669.30 on Friday, Coronation Research said in a note. This left the gap between the NAFEM and the parallel market rate at 9% on the back of market wide decline in the value of the local currency.
According to data from the FMDQ platform, total turnover at Nigeria autonomous FX market declined by 47.6%, or USD615.5 million, to close at USD677.2 million on Friday. >>> Naira Rises against US Dollar Ahead of Sept. FX Auction
Meanwhile, the NAFEM window recorded an inflow of USD616.6 million, with the CBN accounting for 25.5% of the total inflow, FPIs 3.2%, non-bank corporates 27.2%, exporters 29.5%, and others accounted for 14.6%.
At the CBN monetary policy committee (MPC) meeting, members pointed out unabating demand pressure in the FX market and the recent efforts to stabilise the naira.
The monetary authority also highlighted the positive impact of the Dangote Refinery, which potentially reduces FX demand for fuel imports and supports the overall balance of payment.
The committee also noted the sustained accretion in the FX reserves in the near-recent weeks. External reserves moved near a 2 year high due to sustained FX inflows into the economy from yet-to-be identified sources.
In the global commodities market, oil prices increased due to news of monetary stimulus from top importer China and concerns about potential supply disruptions in the Middle East and the United States.
Brent prices increased by 1.58% to $75.04, and WTI prices rose by 1.44% to $71.38. Additionally, gold reached a record high as Middle East tensions fueled its safe-haven appeal, and investors reacted to fresh cues for more U.S. interest rate cuts. #Naira Sinks as FX Shortage Shifts Rate Nears ‘Fear Index’ Italy’s CDP, AfDB to Invest €400m in Africa’s Private Sector
