Naira Gains 6.1% as FX Pressure Declines
The Nigerian local currency, the naira, traded at N741.64 per the United States (US) dollar at the Investors, and Exporters’ foreign exchange market as supply side pressures slowed down further.
The new spot rate translates to a 6.01% rebound against the dominant trading currency, the US dollar, which was priced at N789.08 in the official market the previous day. Hence, the gap between official and parallel market rates has widened above N100.
On account of a record level of foreign currency shortage, the exchange rate has been moving both ways over the period since FX reform began in June 2023. By estimate, the naira is still under value until it trades below N700 per US dollar in the fx market.
On account of this market consensus, FX traders estimated that the naira would regain position after the Central Bank of Nigeria (CBN) settled the FX backlog owed to foreign investors who had sought to upstream funds offshore – right before the devaluation of the local currency.
Forex supply is the only thing holding the local currency back from regaining its true market rate, research analysts at LSintelligence Associates said in a commentary note shared with MarketForces Africa. Bank of America estimated that the naira would appreciate to N680 when devaluation dust settled.
In the parallel market, the Naira experienced a slight depreciation of 0.34% against the US dollar, reaching N875 amidst a sustained decline in the nation’s external reserves. Data from the apex bank showed that FX reserves dropped to $34.94 billion, providing Africa’s largest economy by size of gross domestic product with 6-month import cover.
The tepid accretion into the gross external reserves relates to oil swap deals taken by Nigeria and low production volume – even when prices remain relatively above budget. >>> Naira Devaluation Deepens Economic Crisis in Nigeria
At the close of the market session midweek, Brent crude fell 0.78% to $84.25 per barrel, while WTI crude lost 1.02% to $80.54 per barrel. The two grades had rallied earlier in the morning over a positive demand outlook.
US energy demand is projected to improve following a decline in crude stock. #Naira Gains 6.4% as FX Pressure Declines