FX Rates Worsen as Naira Bears Release 'Red Warnings'

Uncertainties mount as the Nigerian naira continues to lose its allure due to sustained US dollar and other foreign currencies scarcity in Africa’s largest economy. In their separate estimates for 2024, investment banking firms and rating agencies see an official exchange rate above N1000.

The growing naira bears with flurry of negative predictions for the exchange rates continuing to reduce forex market participants’ optimism that the naira could grow wings again. FX Traders continue to express a bearish view on the Nigerian naira amidst the Central Bank, government’s attempt to boost the US dollar supply with external borrowings.

“FX traders are expressing low optimism about the future of the naira”, research analysts at LSintelligence Associates said in a chat. The Naira depreciated by 2.54% at the official market, closing at N925.34 to the US dollar from N902.45 per dollar. In the parallel market, the Naira traded weak on Monday to close at N1,355  amidst an expectation that rates would worsen in 2024.

However, currency pressures remain heightened as FX shortages persist in the face of a largely constrained external reserves position, limited crude oil output, an FX backlog of $8 billion and past-due FX forwards estimated at $6.5 billion. Foreign currency shortages will persist in 2024 considering the widening gap between the official and parallel rates and weak supply fundamentals

Following an ongoing recovery in the oil market, the Nigerian gross external reserves continue to hover at $33.2 billion as an indication emerged that the government is expecting $18 billion in FX inflows.

“We forecast usable FX reserves of $28 billion in 2024. The CBN has made efforts to clear approximately $2 billion out of a $7 billion backlog of FX transactions, while Saudi Arabia has pledged FX support.”, Standard & Poor Global said in its latest update on Nigeria.

S&P analysts said they expect the current account to record a small surplus averaging below 1% through 2025 as the import bill increases faster than oil exports due to high prices. Agusto Ratings said the official exchange rate will close the year at N1100 versus N1000 CardinalStone Partners predicted in its FX outlook for the year.

“In 2024, we believe that the risk of further depreciation of the naira looms large as external imbalances persist. This is despite expectations of higher export earnings from improved oil production and still high oil prices. According to analysts capital inflows are likely to remain constrained by low investor confidence as FX illiquidity lingers.

“The CBN has committed to “intermittently boost FX liquidity”, and we believe the recent receipt of a $2.25 billion FX support facility from AFREXIM, anticipated inflows from the World Bank.  NGX Crosses N52Trn as Dangote Cement Rallies

“… and proceeds from dividend securitisation from the NLNG will support efforts in this regard”, Agusto Ratings said in an update, saying the amount represents about 12.5% of the estimated $18 billion inflow expected from various external sources.

“We believe that achieving 50% of this target in 2024 and maintaining crude oil output at 1.5mbpd will be crucial in restoring FX stability in the near term”. In the global commodity market, WTI crude futures advanced by 1.14% to $74.09 per barrel on Monday. Also, the Brent Crude increased by 1.03% to close at $79.37 per barrel. #FX Rates Worsen as Naira Bears Release ‘Red Warnings’