Naira Rises as Nigeria Renews $2bn FX Swap Deal with China
The naira saw a weekly gain in the foreign exchange markets amidst a $2 billion currency swap deal between Nigeria and China. According to data, the naira gained N7 week on week to close at N1534 per US dollar in the official currency market.
According to AIICO Capital Limited, FX-related transactions were executed within a range of N1,532 to N1,550 before the exchange rate settled at N1535 per greenback on Friday.
The exchange rate trend was supported by the Central Bank of Nigeria’s (CBN) recent aggressive FX auction sales to local deposit money banks to meet year-end demand. The aggressive US dollar sales to authorised dealer banks have been considered inconsistent with previous patterns, which then suggested that the authority has a year-end exchange rate target.
Market critics think the CBN has appeared to accept that the naira is no more grossly undervalued so far spot rate trend between N1,500 and N1600. The hope to see exchange rates at N1000 and N1200 might be unachievable in the short and medium term, analysts at LSintelligence Associates said in a chat.
Earlier projections from Goldman Sachs targeted a N1,200 exchange rate for the naira in 2024. Fitch Ratings keep its year-end estimate for the local currency at N1,450, while Renaissance Capital and Financial Derivative Company were more bullish on the naira in terms of its fair value.
In the parallel market, the naira gained N15 on each dollar to settle at N1,655. This reduced the exchange rate gap between the official and parallel markets to N120, or 6.8% versus 7.33% the previous week.
Nigeria and Chinese authorities cemented bilateral trade and investment relationships with 15 billion yuan or a $2 billion currency-swap arrangement in the just concluded week. The deal aims to boost trade and investment between the two countries, the authority said.
In a statement released on Friday, the People’s Bank of China (PBOC) confirmed that the arrangement will remain in place for another three years, with provisions for renewal by mutual agreement.
The deal allows for the direct exchange of the Chinese yuan and Nigerian naira, bypassing reliance on the US dollar and reducing transaction costs in trade between the two nations. Originally signed in June 2018, the currency swap facility was introduced to address liquidity challenges for businesses in both countries and to facilitate trade in their respective currencies.
The deal enabled the exchange of up to 15 billion Chinese yuan (CNY) for 720 billion Nigerian naira (NGN), equivalent to $2.5 billion at an exchange rate of N305 to $1 at the time. The parties seek to streamline trade transactions by eliminating the need for US dollars as an intermediary currency.
President Bola Tinubu’s media aide, Bayo Onanuga, who shared the report on his official X handle, said the agreement is valid for three years and can be renewed upon mutual consent. #Naira Rises as Nigeria Renews $2bn FX Swap Deal with China Naira Mixed as CBN Turns Aggressive with FX Interventions
