Exchange Rate Falls as Demand for Dollar Suffocates Naira
The exchange rate fell to N1,475 per US dollar at the Nigerian Foreign Exchange Market (NFEM) as a spike in US dollar demand by eligible foreign currency users suffocated the naira.
The local currency has lost N15 in the last two trading sessions in the official segment, which suggests pressures may be building in the absence of FX intervention.
According to data released by the Central Bank of Nigeria (CBN), the local currency closed the trading session on Monday at N1,470.2614 per dollar, depreciated from N1,465.6776 last week.
The currency market experienced a higher US dollar demand level that outpaced FX liquidity at the official window. Hence, the official FX spot rate touched an intraday high of N1,475.5000 and eventually closed at N1,470.8435 per dollar.
A slew of analysts who spoke with MarketForces Africa said the CBN was not in the market to sell US dollars to authorised dealers and banks. The exchange rate downward trend was attributed to carryoverdemand in the forex market last week.
In a note, Coronation Merchant Bank research unit reported that activity levels moderated slightly at the NFEM window last week. According to research analysts at Coronation Merchant Bank subsidiary, FX inflows declined to US$835.60 million versus US$1.18 billion in the prior week.
By composition, foreign portfolio investors contributed the largest share at US$259.11 million, which was equivalent to 30.06% of aggregate supply.
FX inflows from exporters accounted for 20.30% of the total, foreign direct investments contributed 19.9%, nonbank corporates (8.9%), the CBN (14.89%), and other sources (12.2%).
The naira strengthened across both official and parallel markets last week, buoyed by sustained CBN interventions and foreign inflows during the week.
At the NFEM window, the local currency appreciated by 1.02% week on week to close at N1,465.68/US$1, while in the parallel market it advanced by 2.75% to N1,455.00/US$1.
Consequently, the gap between the two markets flipped to -N10.68 (a premium of 0.73% on the official market rate), from N14.34 a week earlier, as speculative activities eased – especially as the seasonal demand hike normally seen before the new academic year and the end of the summer holiday period.
Analysts expect the Naira to maintain its positive trajectory across FX segments this week, underpinned by CBN support and foreign inflows, barring any external domestic and global shocks. # Exchange Rate Falls as Demand for Dollar Suffocates Naira Nigerian Treasury Bills Rally, Excess Liquidity Fuels Demand
