Naira Mixed as External Reserves, US Dollar Volume Fall
The Nigerian local currency, the naira, recorded mixed performance in the foreign exchange market amidst falling external reserves and weekly decline in US dollar volume.
The exchange rate saw marginal improvement in the official foreign exchange market, but exchange rate worsened at the informal currency market. Data showed the gross external reserves continued to decline after a series of successive inflows that raised the balance to an 18-month high.
According to data from the Central Bank of Nigeria’s (CBN) website, the nation’s gross external reserves declined for the third consecutive week. The balance in the external reserves declined by US$63.50 million week-on-week to US$36.44 billion, movement in reserves data on the CBN platform showed.
Last week, the naira achieved its highest single-day appreciation of 3.1% on Wednesday, the best daily performance saw last on 22 July, when it gained 6.4%, before closing the week at N1570.14 at the Nigerian Autonomous Foreign Exchange Market (NAFEM).
This showed that the local currency appreciated against the US dollar by 0.62% week-on-week, reaching ₦1,570.14 as demand for foreign currency in the economy by market actors. Citing market data, investment banking firm Afrinvest Limited noted that activity level in the NAFEM window waned, as total turnover fell 29.8% week on week to $811.6 million.
Cordros Capital Limited said trades were consummated at the window within the N1,470.00 – N1,603 band. In the forwards market, the naira rates depreciated across the 1-month and 6-month contracts but appreciated across the 3-month and 1-year contracts.
One month forward contract depreciated by 0.5% to N1,623.59 per US dollar. Also, Six months forward contract depreciated by 1.6% to N1,782.42 per greenback. However, Three months forward contract appreciated by 0.4% to N1,681.93, while one year contract rose by 1.6% to N1,972:27 per US dollar.
Despite the CBN’s FX retail auction, analysts highlight persistent demand pressures causing the naira to trade with high volatility during the week. “In the near term, we anticipate the naira will remain pressured owing to weak supply”, Cordros Capital Limited said.
Overall, exchange rate had a mixed performance against the dollar. Specifically, the Naira gained 0.6% against the US dollar to close at N1,570.14 in the official market. However, the local currency depreciated by 1.2% to close at N1,605.00/$1.00 in the parallel market.
The rates direction has widened FX gap to N35 on each US dollar, increasing risk of currency speculation.
In the global commodities market, crude oil prices declined this week due to weakness in global demand. Overall, Brent oil decreased by 0.90% to $78.96 per barrel, while WTI declined by 2.43% to $74.79 per barrel. The price of gold increased by 0.40% to $2,547.90 per ounce. #Naira Mixed as External Reserves, US Dollar Volume Fall
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