Naira Fluctuation Dims Hope for FX Rates Convergence
Nigerian naira

Naira Fluctuation Dims Hope for FX Rates Convergence

Weak foreign currency supply and sizeable foreign currency backlog kept market expectations of exchange rate convergence in check. FX spread has widened further after a large devaluation of the local currency.

In the official market, the exchange rate has formed a pattern, it swung right today and left the next day – making it more volatile consummating large ticket foreign currency-denominated transactions. 

Partly; the unregulated parallel market rate has continued to worsen as FX users preferred non-documented purchases after the apex bank mandated banks to sell forex to businesses, and personal traveling allowance with terms and conditions to Nigerians.

“Nigeria’s exchange rates may not converge in 2023 as devaluation was politically influenced. The time used to plan FX liberalisation was short, and there was no backup plan by the monetary authority”, a senior economist who preferred not to be mentioned told MarketForces Africa.

Naira depreciated against the dominant foreign currency, the United States (US) dollar on Wednesday as supply side pressures extended. The local currency was exchanged at N782.38 at the Investors and Exporters window.

The spot exchange rate translated to a 3.38 per cent depreciation level in the market when compared with N757.51 which it exchanged for the greenback on Tuesday. Market data showed that the open indicative rate closed at N778.49 to the dollar on Wednesday.

A spot exchange rate of N800 to the dollar was the highest rate recorded within the day’s trading before it settled at N782.38, traders said.  It was noted that the local currency was sold for as low as N730 to the dollar within the day’s trading.

Amidst the fluctuating volume of transactions that the official window has been recording, the exchange rate has been swinging depending on the level of inflows from key sources like non-bank corporates, exporters’ inflows, and the Central Bank of Nigeria including individuals.

Yesterday, market records showed that a total of 60.26 million dollars was traded at the investors’ and exporters’ window on Wednesday.

In the parallel market, the Naira experienced a 3.28% depreciation against the US dollar, reaching N915 as hope for FX inflows into the external reserves dim, though continued to rally. 

Brent crude rose 0.96% to $87 per barrel, while WTI crude gained 0.75% to $83.54 per barrel.  Oil futures were higher, due to supply constraints from Saudi Arabia and Russia, which outweighed demand concerns related to rising US crude stocks.  #Naira Fluctuation Dims Hope for FX Rates Convergence Naira Steadies as Banks Issue Update on FX Purchase