Naira Rebounds Over Moderate Demand for Forex
The exchange rate rebounds to N463.67 per United States (US) dollar from N464 at the Investors and Exporters FX window, recovering from its multi-year high of N464 amidst moderate demand for foreign currencies in the market.
Despite sustained record scarcity of foreign inflows into the local economy, Nigerian manufacturers and importers continue to obtain foreign currency through the window to close foreign transactions.
The demand side includes any other trade-related payment obligations, according to the Central Bank. Exporters’ receipts are also channelled through the market
Analysts said the higher the amount paid to obtain US dollars, the more capital is needed to settle foreign currency exposures, which often lead to higher FX losses on annual basis due to unstable rates.
Data from the FMDQ platform indicated that FX traders maintained bids between N462 and N465 on the back of lower demand for the greenback at the official window.
While demand for forex remains predictable in Nigeria, the supply side is clouded by uncertainties. Nigeria’s poor comparative advantages put manufacturing concerns in a tight, and most times, they are the major importers of goods and services from a relatively organised economy.
As their demands for foreign currency to effect transactions via the Central Bank of Nigeria’s Investors and Exporters FX window rise, the value of the local currency, the naira, sinks.
Despite efforts to diversify foreign earnings, sales from hydrocarbon output remain a major earnings driver of the Nigerian government. Exporters’ receipt component of the non-oil sector still struggling years after.
At the parallel market, the Naira traded on a quiet note, the open market rate was unchanged at N738. Analysts noted that reducing FX allowance to invisible demand is yet to spill into the open market where foreign currencies are trading freely.
A look at activities at the Interbank Foreign Exchange Forward Contracts market, the spot exchange rate remained unchanged closing at N462.
In a market note, analysts at Cowry Asset Management confirmed that it was the dollar reign across major forward contracts with depreciations reported for the Naira at the 2-Month, 3- Month and 6-Month Contracts by – 0.14%, -0.82%, and -0.61% respectively to close at offer prices of N479.11, N489.86 and N516.33 last week.
On the other hand, the Naira gained by 0.11% and 0.30% week on week for the 1-Month and 12-Month contracts to close at contract offer prices of N468.68 and N560.79.
the CBN data bank showed that the Bonny Light crude price surged by 0.32% or ($0.28) week on week, to close at $88.15 per barrel from $87.87 per barrel in the previous week amidst the tightening supply, expected Fed rates hike, persistent worries on oil demand and the market volatility due to price oscillations.
Analysts at Cowry Asset said they expect the naira to trade in a relatively calm band across various market segments barring any market distortion and as the apex bank continues its weekly FX market intervention to defend the value of the naira. #Naira Rebounds Over Moderate Demand for Forex
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