The drop in global price of oil failed to shake Naira in the foreign exchange market last week. However, market analysts have predicted that sustain drop in the oil price may not augur well for the local currency as CBN struggles to build external reserves.
According to the latest trade balance, oil production dropped in the first quarter of 2019 in addition to decline oil price would mean that Federal Government revenue aggregate has been drastically affected.
Last week, the CBN continued its interventions, with FX sales of US$294.7 million in the retail secondary market and CNY31.43 million in the spot and short tenor forwards segment of the inter-bank foreign exchange market.
Accordingly, there was exchange rate stability in all segments of the FX market. Although the external reserves are currently unchanged from previous week at US$45.1 billion , the prospect of further accretion through oil exports is weak given that oil price at US$62.3/ barrel per liter has moderated 16.6% from the year to date (YTD ) high of US$74.7 barrel per liter as at mid-May 2019.
The CBN spot rate traded flat all week to close at N306.95/US$1.00. Similarly, at the parallel market, rate opened at similar levels N361.00/US$1.00 and traded flat all week.
At the Investors’ & Exporters’ (I&E) FX Window, the NAFEX rate opened the week at N360.18/US$1.00 but depreciated by 57 kobo to close at N360.75/US$1.00 on Friday. Activity level in the investors and exporters (I&E) window improved as total turnover advanced by 46.7% to US$728.4 million from US$496.5 million in the previous week despite the two days holiday.
At the FMDQ OTC futures market, the total value of open contracts of the Naira settled at US$8.9 billion, US$256.2 million higher than US$8.7 billion in the prior week. The MAY 2020 instrument at contract price of N362.28 received the most buying interest in the week with additional subscription of US$85.7 million which took total value to US$419.2 million.
On the other hand, the MAR 2020 instrument at contract price of N361.98 was the least subscribed with a total value of US$598.12 million. As the CBN Governor, Mr. Godwin Emefiele, assumed duty for a second term.
“We expect the CBN to sustain its support for the currency going forward. Thus, we expect the naira to trade within similar bands in the coming this week”, Afrinvest said