Naira Mixed as Currency Speculators Feel CBN FX Intervention
Naira trade mixed this week, though closed lowered in the Investors and Exporters foreign exchange window but there was a show of strength in the unofficial market as speculators count losses following Central Bank (CBN) FX interventions.
In what appears like a coordinated plan against speculative activities in the currency market, the Central Bank stepped up market intervention by increasing dollar supply. The impacts were felt across with black market rates adjusting downward.
Local banks are now upgrading customers monthly dollar spending, according to sources in the financial services sector. The monthly dollar available for spending by Nigerians increased to $200 from $100, a 100% jump from a level seen in two years.
On Friday, data from the CBN website shows that Nigeria’s foreign reserve sustained its decline. In the aftermath of FX interventions, the gross reserves closed lower by US$167.67 million week on week to US$41.53 billion.
Meanwhile, the naira depreciated by 0.2% week on week to N415.10 a dollar at the investors and exporters foreign exchange window but appreciated by 4.4% to N540.00 at the parallel market.
With the CBN recent move, the naira will see a further gain in the black market, analysts told MarketForces Africa though some remain sceptical; saying gaining streaks doesn’t nullify the fact that the local currency is overvalued.
Cordros Capital said in a market report that at the Investors and Exporters foreign exchange window, the dollar volume transacted increased by 15.8% from the beginning of the week to date.
According to analysts reports, total dollar volume traded closed at USD654.38 million on Friday while trades were consummated within the N404.00 – 453.15 to a dollar band.
In the forwards market, analysts said the 1-month contract gained +0.1% to N415.85 per dollar, 3-month strengthen by 0.1% to N421.86. Also, in the same pattern 6-month contract gain +0.1% to N430.99 per dollar but a 1-year sees +0.7% gain to N447.63 per contract, reflecting appreciations of the naira to the greenback.
Although the CBN has enough liquidity to support the market in the near term, analysts at Cordros Capital think foreign inflows are paramount for sustained FX liquidity over the medium term given their level of importance in the investors’ window.
Before the pandemic, analysts hinted that foreign inflows accounted for 53.8% of foreign currencies inflows to the Investors and Exporters foreign exchange window.
“We think further adjustments in the Naira-USD peg closer to its fair value as implied by the real effective exchange rate estimated at N456.67 to a dollar and flexibility in the exchange rate would be significant in attracting foreign inflows back to the market”, Cordros capital said.
Accordingly, analysts are expecting the Central bank to devalue the Investors and Exporters window foreign exchange rate between N440.00 and N460.00 per dollar over the short-to-medium term.
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