Naira Drops, FX Gap Widens as Foreign Reserves Hit $54.92bn
The naira weakened to N1,330.0965 at the official window from N1329.1600 as demand for the US dollar pressured liquidity in the forex market – the spot rate was quoted at N1,329.5138 at the beginning of the week.
At the informal FX market, the local unit dipped 13.50% to N1,555.00, widening the gap between the two to about N225 from N41, investment firm AIICO Capital Limited said in a report.
Based on a channel check by MarketForces Africa, some fintech apps quoted the exchange rate at N1362 on Friday, with several selling US dollars at that rate or higher.
The local currency has seen a series of positive movements recently, reflecting improved liquidity in the foreign exchange market. With robust FX supply covering US dollar demand, the local unit gained about N3.80 per greenback in Sept., amid growing foreign interest in the economy.
With a series of credit rating upgrades, Nigerian risk beta has improved, aiding hard-currency flows into financial markets as investors chase higher yields on naira assets.
The naira firmed up against the pound, closing at N1,759.58, and the euro settled at N1,496.76 in the official window, AIICO Capital Limited said in its report.
The investment firm said the naira weakened against the pound to N2,010.00 and the euro to N1,650.00 at the parallel market.
Meanwhile, Nigeria’s external reserves increased marginally by 0.07% week-on-week to US$54.92 billion. The continued accumulation of reserves provides an additional buffer for the external sector and supports confidence around the naira, Cowry Asset Limited said in a note.
The firm said the currency’s stability will remain dependent on foreign exchange inflows, market liquidity, and the balance between FX demand and supply.
In the global oil market, crude prices were on track for a modest weekly decline, as a strong rebound in oil flows from the Persian Gulf outweighed concerns surrounding the deployment of additional U.S. troops to the Middle East and China’s decision to halt fuel exports during the month.
Brent crude traded at US$99.84 per barrel, while West Texas Intermediate (WTI) stood at US$92.62 per barrel. Both benchmarks recorded strong gains in September but have moderated at the start of October as supply concerns eased somewhat.
In the domestic market, Bonny Light crude declined by 3.83% during the week, suggesting some moderation in local crude pricing despite elevated international benchmark levels.
“We expect the naira to remain relatively stable in the near term, supported by the improvement in external reserves and narrowing exchange-rate differentials”, Cowry Asset Limited said.
Markets anticipate movements in crude oil prices and developments in the Persian Gulf could influence foreign exchange liquidity and sentiment.
Analysts hinted that a sustained decline in oil prices could weigh on Nigeria’s external inflows, while renewed geopolitical tensions may provide upside support for crude prices and, consequently, the naira. Investors Chase Nigerian OMO Bills with N6.1trn Subscription
