Heavy Demand for US Dollar Knocks Naira Down
The naira struggled to keep value across the foreign exchange market on Wednesday as the Nigerian year-end import appetite increased. The market expects decent FX inflows but sustained negative interest yield on investment options has kept foreigners away from the financial markets.
While forex demand has been climbing in a sustained manner, export receipts from oil and non-oil sectors and remittances from abroad have been tight. This has kept a lid on the naira which has been struggling against the dominant foreign currency – the US dollar.
Exchange rates in both official and black markets had rallied strongly after the central bank announced the payment of FX backlog worth about $7 billion. While market intervention has reduced significantly, the monetary authority has removed some pressure-induced capital control measures, which analysts believe worked in reverse order.
Data from FMDQ revealed that local currency depreciated by 1.15% against the US Dollar in the Nigeria Autonomous Foreign Exchange market (NAFEM), closing at a rate of N840.53.
In the parallel market, Naira depreciated by 0.88% to close at N1,150 per dollar. Hence, the gap between the official and black market declined. Rates have been moving like a pendulum amidst an acute shortage of foreign currency in the country. While the monetary authority has continued efforts to achieve FX rate convergence, exchange rates have been unstable.
Bearish conditions in the global oil market could impact government revenue and tame accretion into external reserves in the latter part of the year. Nigeria’s gross external reserve stays below $33.4 billion despite increased oil production volume – as per an OPEC report.
Oil market has remained tight amidst conflict in the Middle East and not so good demand outlook following rising US inventories and an expected slowdown in China’s demand. Naira Devaluation Deepens Economic Crisis in Nigeria
ICE Brent crude declined by 4.26% to $79 per barrel, while the West Texas Intermediate (WTI) crude oil also declined by 4.00% to $74.7 per barrel. In the forex market, the strong US dollar is again keeping GBP/USD pinned down. #Heavy Demand for US Dollar Knocks Naira Down