Naira Bulls Rise over Increased Confidence in FX Markets

The Rise of Naira Bulls: A growing number of investment firms have changed their outlook on Nigeria’s naira to positive after spurious demand for foreign currency that worsened exchange rates early in the year.

Goldman Sachs, Renaissance Capital, and Financial Derivative Company (FDC) in their separate reports projected that the local currency would claw back losses sustained after official devaluation. The Nigerian autonomous foreign exchange market’s turnover increased by +14.4%, or US$272.4 million, to close at USD 2.2 trillion on Thursday, according to data from FMDQ.

The CBN contributed 17.1%, foreign portfolio investors contributed 36%, non-bank corporates contributed 25.7%, exporters contributed 17.6%, and others contributed 3.6% of the USD869.1 million that was inflow into the NAFEM window during this period.

The naira came under pressure in the first quarter of the year due to the scarcity of foreign currency inflows in the official market. At the same time, there was rising demand for the US dollar in the parallel market for invisible demand.

In the first quarter of 2024, the worst-ever depreciation of exchange rates occurred in both markets, which trickled down to consumer prices and increased inflation to 31.70% in February. This was supported by massive speculative activities in the forex markets. The determination of the authorities to curb speculative activities in the foreign exchange market has contributed to a rise in confidence.

FX inflows into the market have improved following multiple directives introduced by the central bank, including asking banks to reduce their net open positions. Additionally, a cap on the amount that foreign oil companies can repatriate at a time was imposed by the Central Bank of Nigeria (CBN).

In the foreign exchange market, the Naira strengthened by 0.62%, closing at ₦1,255.07 per US dollar in the official market. Also, the Naira closed at ₦1,235 to the US dollar in the parallel market following subsidised FX sales to Bureau de Change operators.

In the global commodity market, oil prices took a negative turn, as Brent crude decreased by 0.35% to $89.24 per barrel, and WTI crude dropped by 0.42% to close at $85.23 per barrel.#Naira Bulls Rise over Increased Confidence in FX Markets  Selloffs Provoke Spike in Nigerian Treasury Bills Yield

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