Naira Gains 10% in Parallel Market, I&E Rate Settles at N739.52

Naira Gains 10% in Parallel Market, I&E Rate Settles at N739.52

The Nigerian naira saw large weekly gains across the foreign exchange markets expected inflows of $3 billion from a deal closed by the Nigeria National Petroleum Company with the African Export-Import Bank (Afrexim), increased market intervention by the apex bank and reintegration of Bureau De Change operators.

Broadstreet analysts expect NNPC-Afrexim Bank $3 billion loans to boost FX liquidity in the country after a persistent US dollar shortage while the Central Bank of Nigeria’s (CBN) decision to reintegrate open market currency traders into FX supply boosts market morale.

The move, among other things, caused more than a 10% weekly gain in the parallel market. Some analysts said International Oil Companies’ US dollar sales at the Investors’ and exporters’ FX window also reduce demand pressures.

At the close of the week, the amount of naira for one US dollar declined sharply across the FX market. At the investors and exporters window, the naira appreciated to N739.52 per US dollar, according to data from the FMDQ OTC FX market.

The exchange rate at the official window had crossed N803 as demand eclipsed FX market supply – widening the gap between official and parallel market rates. Still, analysts said the future of the naira is bleak as the country continues to struggle to generate foreign currency inflows through transactions voluntarily agreed upon across the globe.

The interplay of economic factors, foreign exchange dynamics, and oil prices shape Nigeria’s economic landscape, fostering both optimism and caution, analysts at Cowry Asset Management said in a market update.

“For Cowry Research, the Naira’s intermediate-term outlook is favourable, with expectations of continued appreciation against the US dollar”. The local currency gained 10.05% against the US dollar at the parallel market, closing at N850/$1 respectively.

The market recorded an increase in foreign currency supply from the CBN via the Investors and Exporters (I&E) window. Last week, NNPC Limited secured a $3 billion emergency crude oil repayment loan from Afreximbank. The same week, the CBN announced the reintegration of the Bureau de Change in FX markets after operators were derecognised a few years back. 

Currency analysts noted the CBN’s interventions in the foreign exchange market supported the Naira, contributing to an augmented dollar supply and downward pressure on the exchange rate.

In the forwards market, the naira gained +1.4% to N783.46 for 1-month contract, 3-month contract rate rallied by 1.3% to N802.83. Also, 6-month contracts appreciated by +0.8% to N831.80 and 1-year rallied by 0.9% to N890.12.

Elsewhere, Nigeria’s FX reserves declined further last week. The gross external reserves level dropped by USD37.45 million week on week to close at USD33.83 billion, though the global oil market remains healthy despite price fluctuation.

Oil price dynamics were initially positive due to robust demand and constrained supply, according to market data obtained from Brent crude hit $88.15 per barrel and WTI crude reached $86.67 per barrel on Monday.

However, apprehensions about a global economic slowdown led to a midweek price decline, closing at $84.87 for Brent and $81.36 for West Texas Instruments (WTI).  Despite fluctuations, weekly oil prices remained on an upward trend, though uncertainty lingers. The IEA warned of potential oil demand growth slowdown in 2024, while OPEC+ is expected to maintain production cuts.

Market data showed that the price of Bonny Light crude oil closed positive on Friday at $87.44 per barrel on the back of global supply concerns and the current relative strength of the dollar.

“We think the recent NNPCL’s emergency crude repayment loan from the African Export-Import bank is a favourable short-term fix in providing near-term FX supply to support the FX market and stabilise the local currency.

“Nonetheless, we acknowledge that the amount is not sufficient to significantly support the local currency, more so that the funds will come in tranches.

“Thus, if not adequately managed with other measures such as higher interest rates and additional funding support from third parties or multilateral institutions, FX pressures may likely build up again, leading to another round of local currency depreciation”, Cordros Capital said in a note.

Overall, FX market analysts expect the naira to trade in a relatively calm band at the various forex markets barring any distortions while the apex bank maintains its interventions to shore up the naira value. #Naira Gains 10% in Parallel Market, I&E Rate Settles at N739.52 Nigerian Treasury Bills Yield Rises to 7%