Naira Diverges, Exchange Rates Gap Hits N245
The naira gained marginally at the Nigeria autonomous foreign exchange market as demand undercut the volume of US dollars supplied first time in the new week. The future of the local currency remains uncertain with a large gap between official and unofficial rates.
The Naira edged the greenback by 2.96% to close at N1,551.24 per US dollar at the official window. Meanwhile, in the parallel market, the Naira weakened against the US dollar to close at N1,796 per US dollar.
Now, the struggle for FX reform has returned to square one with a widening FX gap. At the close of the trading session on Tuesday, the gap between the official and parallel market exchange rates widened to N245, a strong reason for currency speculation.
Directive for banks to reduce their net open position, and limit placed on International Oil Companies FX repatriation has been less supportive for exchange rate direction thus far.
For banks in a long position, a devaluation of Naira should typically result in FX revaluation gains and vice versa. Thus, the CBN posits that banks in a long position are incentivized to hold higher foreign currency assets, which could pose a threat to FX liquidity.
The apex bank has recently reversed its position after it stopped FX market intervention. Now, the CBN has again committed itself to intermittently FX liquidity boost by selling US dollars to banks. Analysts said they are expecting inflows from the World Bank and proceeds from dividend securitisation from the NLNG to support forex liquidity amidst dwindling external reserves.
Agusto Ratings said in a note that inflows from the World Bank and NLNG dividend securitisation represent 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”, the rating agency said in a recent note.
In the global oil market, prices of crude rebound. Oil prices regained some ground in Asian trade on Wednesday amid concerns over attacks on shipping in the Red Sea and growing expectations that cuts to U.S. interest rates will take longer than thought. Brent crude futures rose 30 cents or 0.36% to $82.64 a barrel, while U.S. West Texas Intermediate crude futures (WTI) were up 26 cents or 0.34% at $77.3.
The Brent and WTI contracts fell 1.5% and 1.4% respectively from near three-week highs on Tuesday as the premium for prompt U.S. crude futures to the second-month contract more than doubled to $1.71 a barrel – its widest level in roughly four months. #Naira Diverges, Exchange Rates Gap Hits N245 DMO Fails to Raise N2.5Trn from FGN Bond Auction
