Naira Reclaims Value as FX Demand Pressures Ease

Naira Reclaims Value as FX Demand Pressures Ease

The Nigerian naira made significant rebounds Wednesday from exchange rate (FX) pressures witnessed in the official window in the previous day due to increasing demand for foreign currency (FCY) to conduct offshore transactions by market participants.

Data from the FMDQ Exchange platform reviewed by MarketForces Africa Research showed that the local currency was quoted at N742.31 per United States dollar at the Investors’ and Exporters’ FX window.

This showed that the exchange rate improved by N26.13 midweek from N768.44 which was quoted in the forex market for importers, exporters, and other invisible users the previous day.

However, the parallel market experienced a depreciation, with the Naira falling 0.76% to N780.9 from N775 per unit of greenback due to a spike in demand ahead of fx liquidity available for trades. Currency traders said users that cannot immediately access funds from official window drive foreign currency surge during the day trading.

The market is still searching for fx rate unification across the markets – open and official FX markets. The monetary authority expects the foreign currency to flow freely after the exchange rate reforms.

There is an indication that the apex bank is planning to settle its fx backlog to foreign investors and possibly return to open market operation in the second half.

In the second half of 2023, forex market liquidity is expected to improve to a level that will support the naira to recover to its fair value following the undervaluation estimates. Bank of America projected that the naira will claw back losses, having noted that it is currently undervalued.

Some investment banking firms agreed with BofA’s estimate on the local currency but insisted that the Central Bank of Nigeria’s decision to float the local currency will have fewer impacts until it clears the FX backlog. Next week, Nigeria is expected to settle $500 million Eurobond.

During the day trading on Wednesday, Nigerian non-deliverable currency forwards fell to a new record low of N775, down from the previous low of N770, Refinitiv data showed.

Non-deliverable currency forwards, a derivative product used to hedge against future exchange rate moves, indicated markets expected the naira’s exchange rate at N775 to the dollar in one month’s time

In the global commodity market, Brent crude rose 0.42% to $76.57 per barrel, while West Texas Instruments (WTI) crude gained 1.11% to $71.94 per barrel. #Naira Reclaims Value as FX Demand Pressures Ease Nigerian Treasury Bills Yield Rises to 7%