FX: Naira trades flat as external reserves settle at $33.9 billion
Naira traded flat despite a drop in external reserves as oil prices remained depressed after the production cost agreement.
The nation’s external reserves fell 1.7% in the week to US$33.9 billion. Oil prices slipped despite the fact that OPEC+ was able to resolve price war between Saudi Arabia and Russia.
Now, OPEC+ and non-OPEC members have reached a production cut agreement but oil prices dropped further in the week. For 2-months starting from May 1st, oil production would be cut by 9.7 and 7.7 million barrels per day.
The detail of the agreement provides that the production cut will run for a subsequent period of 6 months to December 31st, 2020.
Initially, there was a positive reaction to this as Brent crude price rose to $31.7/bbl, Afrinvest stated in a note.
However, oil prices plunged through the week, down to $28.3/bbl. on Friday. In the foreign exchange market, the CBN has stopped sales since March 20, 2020, and has been running skeletal services at the I&E window.
This has resulted in a backlog of FOREX demand, especially from foreign portfolio investors (FPIs). On April 28, the CBN will resume activities in the financial market if the lockdown is not extended, again. The CBN spot rate traded flat all week to close at ₦361.00/US$1.00.
At the parallel market, the rate opened at ₦415.00/US$1.00 and depreciated ₦1.00 to close at ₦416/US$1.00. At the Investors’ & Exporters (I&E) Window, the Nigerian Autonomous Foreign Exchange (NAFEX) rate appreciated 50kobo to close at ₦386.13/US$1.00.
Activity level in I&E Window declined last week as total turnover plunged 75.8% to US$83.2 million from US$343.6 million recorded in the previous week. READ: CBN Devalues Naira 12.95% despite Rising Foreign Reserves
At the FMDQ Securities Exchange (SE) FX Futures Contract Market, the total value of open contracts settled at US$15.1 billion. This represents a 0.6% increase from US$15.0 billion recorded in the prior week.
However, the Apr 2021 instrument with a contract price of ₦393.01 had the most buying interest in the week with an additional US$22.5 million.
This took the total value to US$176.5 million. Aug 2020 instrument at a contract price of ₦389.35 was the least subscribed with sell-offs worth US$1.3 million. This put the total value at US$800.9 million.
“We expect the Naira would continue trading at similar bands in the week ahead”, Afrinvest stated.
