Naira Sinks as CBN FX Supply Dips Ahead of e-FX Test Run
The value of the naira sank against the US dollar at Nigeria’s autonomous foreign exchange (FX) market as demand for the greenback and other currencies eclipsed the supply side volume.
Data showed that the Central Bank of Nigeria’s (CBN) US dollar supply in the official window declined by more than 14% month-on-month ahead of the automated FX trading platform in December 2024.
The Apex Bank will begin to test run its automated foreign exchange platform to increase market confidence and reduce speculative trading. In more than one year, the CBN has continued to introduce FX boosting initiatives but without results.
The naira continues to lose strength against the US dollar and other foreign currency in the market due to FX liquidity shortage in the currency markets. According to spot data from the FMDQ platform, the naira depreciated by 0.61%, closing at ₦1,676.90 per US dollar at the official market.
The exchange rate worsened after the Central Bank of Nigeria (CBN) sold $77 million to authorised dealers banks in the currency market last week. Despite rising external reserves, the Apex Bank contribution to FX inflows in the official window declined by 14.4% in Oct, according data from the FMDQ platform.
In the parallel market, the naira closed at ₦1,725 to the US dollar as pressure for invisible FX payments subsided. In the forwards market, 1-month forward contract depreciated by -1.2% to N1,699.95 per US dollar.
However, the 3-month forward contract gained 1.3% to N1, 732.09, 6-month forward contract also gained +1.0% to N1,848.62. Traders reported that 1-year contract in the forward market appreciated by +3.0% to N2,024.79 last week.
“We expect the naira to remain under pressure in the near term, given the sustained demand pressure in the FX market, CBN’s limited capacity to sufficiently intervene across the market segments and suboptimal inflows from Foreign Portfolio Investors”, analysts said.
Based on the data obtained from FMDQ, total inflows into the Nigerian Autonomous Foreign Exchange Market rose to a five-month high in October, increasing by 40.2% to USD3.04 billion in October versus USD2.17 billion in Sept.
Report showed that inflows from local sources declined by 7.5% month on month to US$1.69 billion in October from USD1.82 billion driven by declines across collections.
Inflows from the CBN dropped by 14.3% in the period in addition to huge 30.6% month on month decline in inflow from the individuals while non-bank corporates FX supply fell 8.6%.
Analysts anticipate that the limited inflows from the CBN may pose downside risks to overall liquidity conditions in the near term, potentially dampening market confidence and heightening pressure on the naira.
Elsewhere, Oil prices surged by over 2% following OPEC+’s decision to postpone their planned output increase by a month. This rise occurred as the market prepared for a pivotal week, featuring the U.S. presidential election and an important meeting in China.
Consequently, Brent crude increased to $74.86, and WTI rose to $71.28. Similarly, gold prices climbed due to the uncertainty surrounding the U.S. election, with markets anticipating a possible contested result and heightened political tensions.
Investors also closely monitored the upcoming Federal Reserve policy meeting, with gold currently trading at $2,742.10 per ounce. #Naira Sinks as CBN FX Supply Dips Ahead of e-FX Test Run Ghana to Import Petroleum from Dangote Refinery – Official
