Naira Sinks at Official FX Window as External Reserve Falls

Naira Sinks at Official FX Window as External Reserve Falls

Naira Sinks: The Nigerian local currency, Naira, sheds value at the official foreign exchange window in the just concluded following a moderate decline in the nation’s external reserves amidst rallies in the global oil market.

Despite an increase in Nigerian Qua Iboe crude oil and expectation of dollar inflow into the economy, the local currency failed to hold strong against the greenback this week even at its fresh spot position where it has held sway at N416.

Market data shows that Naira’s exchange rate rose –depreciated – by 0.16% to close at N416.67 to a United States dollar at the Investors and Exporters FX Window despite the rising crude oil prices.

Last week, Brent crude oil crossed the $110 per barrel amid Russia–Ukraine crisis which aggravate the global energy crunch with a stronger dollar while European Central Bank keeps at hiking rates.

At the current level, oil prices have inched up to 2013/2014 highs while projections show the market would likely see further uptrend amidst Russia’s invasion into Ukraine territory.

Unfortunately, the strong price jump hasn’t translated to accretion into Nigeria’s external reserves which have dropped below $40 billion benchmark – possibly as a result of unscheduled premium motor spirit imports to cushion the effect of scarcity.

Nigeria’s gross foreign reserves declined to $39.87 billion, according to data from the Central Bank of Nigeria (CBN) website. In the parallel market, the local currency appreciated against the greenback by 0.74% to close at N578.

At the Interbank Foreign Exchange market, the foreign exchange rate closed flat at N430.00 to a dollar amid CBN’s weekly injections of $210 million. Of the sum, $100 million was allocated to Wholesale Secondary Market Intervention Sales (SMIS), $55 million was allocated to Small and Medium Scale Enterprises and $55 million was sold for Invisibles.

The exchange rate fell, meaning Naira gained, for all the foreign exchange forward contracts, according to data obtained from the FMDQ Exchange platforms, also cited by investment banking firms. Read: Yield on T-Bills Sinks 10 Basis Points ahead of CBN Auction

Specifically, 1 month, 2 months, 3 months, 6 months and 12 months contracts gained 0.05%, 0.10%, 0.17%, 0.35% and 1.32% to close at N418.30, N421.34, N424.34, N433.42 and N449.35 respectively.

In the coming week, Cowry Asset analysts expect sustained pressure at the Investors and Exporters FX window as the markets react to strain in forex supply despite higher crude oil prices at the international market as production output remains low.

At the official window, total turnover or volumes of dollars transacted declined by 24.9% to $433.45 million this week, with trades consummated within the N408.00 – 453.15 per dollar band. #Naira Sinks at Official FX Window as External Reserve Falls