Naira Trades Flat Across FX Markets amidst Uncertainties
The Nigerian local currency, Naira, trades flat across foreign exchange (FX) market amid uncertainties in global and local economic environment.
This week, oil market featured increased volatility this following slow vaccinations and brewing concerns about a third wave of COVID-19 lockdown however, the Suez Canal blockage backed up an increase in price.
Consequently, Brent price rose marginally by 0.1% to $64.6 per barrel this week. Locally, external reserves rose 0.5% week on week to $34.6 billion.
In the FX market, activity was muted as rates across the different segment remained flat amidst series of unorthodox polices from the apex bank to keep Naira strong.
The Central Bank of Nigeria (CBN) spot and parallel market rates traded flat all week to close at ₦379.00/$1.00 and ₦486.00/$1.00 respectively.
Also, rate at the Investors’ & Exporters’ (I&E) Window closed flat week on week at ₦410/$1.00.
Amidst supply constraints, activity level in the I&E Window dipped 20.7% to $312.0 million from $393.6 million in the previous week.
At the FMDQ Securities Exchange (SE) FX Futures Contract Market, Afrinvest stated that the total value of open contracts rose 1.7% ($106.9m) to $6.5 billion.
It explained that the MAR 2022 instrument at contract price of ₦437.88 sustained its strong demand with an additional subscription of $5.0 million.
The increase took total value to $10.5 million.
Also, the JAN and FEB 2022 instruments at contract prices of ₦434.08 and ₦435.08 saw significant buying interest, as total value increased $48.0m and $38.4m respectively to $233.3m and $413.4m.
“In the coming week, we expect rates to remain in the same band across various segments of the market”, Afrinvest stated.
Weak Performance in T-bills Market
Meanwhile, analysts spotted weak performance in the secondary Treasury bill market during the week. The open market operations (OMO) maturities worth ₦50.0 billion hit the system.
However, system liquidity closed lower at ₦54.8 billion compared to ₦120.1 billion at the beginning of the week following CBN’s OMO auction worth ₦40.0bn.
The OMO sale was oversubscribed at a bid-to-cover ratio of 6.7x, with the 355-day instrument enjoying the most demand.
Afrinvest however said Marginal rates remained the same as in the previous auction at 7.0%, 8.5% and 10.1% for the 89, 173 and 355-day instruments respectively.
“With considerations of high liquidity and sustained attractive rates, we expect the strong demand to be maintained in succeeding auctions”, Afrinvest said.
Money market rates, open buy back (OBB) and overnight (OVN) rates opened the week at 14.5% and 14.75% respectively, lower than 25.0% and 25.5% in the previous week.
On Friday, OBB and OVN rates further fell to 10.5% and 10.8% respectively despite a decline in liquidity levels.
Overall performance in the secondary market was bearish as average T-bills yield closed at 4.6%, up 1.0% week on week.
Analysts said there was sell-off across board as yield rose 54 basis points (bps), 1bp and 249bps above previous week respectively for the 91, 182 and 364-day instruments.
“In the week ahead, we expect the CBN to mop-up liquidity following OMO maturities of ₦180.8 billion and rates would remain within the same band”, Afrinvest stated.
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Naira Trades Flat Across FX Markets amidst Uncertainties
