Naira Consolidates as External Reserve Increases
Riding a post-shock recovery, exchange rates at the official and parallel markets diverge again as the United States (US) dollar scarcity challenge remains untamed despite multiple efforts by the Nigerian government.
Consolidating its position against the US dominance, the naira clawed back a large daily loss reported earlier in the week, trading at N786 against a greenback after hitting red lines multiple times in October 2023.
According to FX traders, the worst unofficial daily loss reported on Monday was driven by a surge in FX demand logged by importers, and manufacturers at the Nigerian Autonomous Foreign Exchange Market (NAFEM).
A slew of forex traders and experts who spoke with MarketForces Africa attributed the development in the forex market to a spurious demand following a report about a plan to redenominate the local currency before the Central Bank (CBN) rebuttal.
To douse the expectation, the apex bank said it has no plan to redenominate the local currency. Since Tuesday, trading data has shown the local currency recovering from spurious demand recorded at the official window on Monday.
“In the last two days, the forex market temperature has started cooling off, at the same time analysts have started witnessing the naira recovery in the open market”, research analysts at LSIntelligence said in an email correspondence with MarketForces Africa FX watch team.
Data from the FMDQ platform showed that the Nigerian naira appreciated by 3.59% to close at N786.02 per US dollar midweek at NAFEX. The Nigerian government maintain a stance that the exchange rate will be stable in 2023 with a plan to improve the level of FX market liquidity.
In a similar vein in the parallel market, the Naira’s performance was positive as it appreciated further at the close of trading on Wednesday by 0.09%. The local currency closed at N1,175 per dollar versus an exchange rate of N1,176 per US dollar on Tuesday.
In the commodity market, crude oil rallies amidst an unsettled conflict in the Middle East. ICE Brent crude price increased by 1.93% to $86.67 per barrel, while the West Texas Intermediate (WTI) crude oil rose by 2.38% to trade at $82.95 per barrel.
Amidst recovery in the global market, Nigeria’s gross external reserves inched higher near $33.40 billion after sustained accretion from oil exports and other remittances. Nigeria is also expecting a $1.5 billion World Bank loan that is yet to hit the external reserves.
Also, an oil for loans deal of $3 billion that was closed by the Nigerian National Petroleum Corps with the African Import-Export Bank (AfreximBank) is yet to hit the system. There is however probability that the deal be stuck as Afrexim continues to search for investors for the purpose. #Naira Consolidates as External Reserve Increases