FX: Oil Market Balance Raises Hope for Naira Stability – Afrinvest
Naira position in the foreign exchange market has drastically dropped, but Afrinvest has stated that there is hope for the local currency as oil market balances.
In the FX market, Naira been under pressure in recent time due to lower accretion into the nation’s external reserve.
This has curtailed the monetary policy’s ability to support the local currency, thus widened spread between the official and parallel market rates.
Though, the Central Bank of Nigeria stance to keep Naira strong through its mid-week market intervention, the reality of multi-tiered exchange rate has been threatened.
Specifically, Naira was devalued, twice in 2020 at the National Autonomous Foreign Exchange rate market in what the apex bank termed technical adjustments.
‘Devaluation is a word the CBN does not want to hear’, analysts told MarketForces Africa.
Explaining the hope for stability, Afrinvest said the external reserve balance sustained a downtrend this week, declining 35 basis points (bps) week on week (w/w) before it settled at $36.0 billion on 23rd of July.
Meanwhile, following the agreement by OPEC+ countries to relax production cuts to 7.7 million barrels per day (mb/d) effective from August, oil continues to trade above $40 per barrel.
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Oil price reached a 4-month high of $44.1 per barrel as of 23rd July as economic activities continued to improve despite the spike in COVID-19 cases.
Analysts said the CBN has continued its weekly intervention into the Secondary Market Intervention Sales (SMIS) Wholesale Window, offering a total of $100 million for the week.
The local currency traded flat at ₦381.00 against the dollar in the official window while it depreciated by ₦2.00 to close the week at ₦472.00/$1.00 at the parallel market.
At the Investors’ & Exporters’ (I&E) Window, the NAFEX rate weakened by ₦1.00 w/w to settle at ₦389.50/$1.00.
Also, activity level weakened 33.2%w/w in the I&E Window to close at $130.3 million.
Afrinvest stated that at the FMDQ Securities Exchange (SE) FX Futures Contract Market, the total value of open contracts appreciated 22 bps ($30.3m) w/w to $13.6 billion.
The SEP 2020 instrument at contract price of ₦396.48 recorded the most buying interest with additional $17.1 million for the week, taking its total value to $1.2 billion.
Conversely, the JAN 2021 instrument at contract price of ₦407.30 saw the least subscription of $1.7 million, bringing its total value to about $1.2 billion.
“In the coming week, we expect the naira to trade at a similar band on the back of sustained CBN intervention sale to the FX segments”, Afrinvest said.
FX: Oil Market Balance Raises Hope for Naira Stability – Afrinvest
