Naira Tumbles, FX Rate to Hit N785 in 1-Month
The Nigerian naira declined by N7.65 at the Investors’ and Exporters’ foreign exchange (FX) window in the just concluded week despite a 2-month consecutive surge in foreign currency inflows into the market.
However, the exchange rate in the open market worsened as the demand level eclipsed market supply. Invisible users flooded the parallel market in a move to boycott banks’ requirements for processing business and personal traveling allowance.
Traders at Investors’ and Exporters’ FX window exchanged the U.S. dollar for N776.90, from N769.25 in the previous week due to pressures, though inflows improved.
Last week, FX trades at the official window were consummated within the N600.00 – N820.00, according to data from the FMDQ Exchange cited by market analysts.
Data from the Central Bank of Nigeria (CBN) shows that gross external reserves dropped to $34.02 billion ahead of maturing Eurobond payment. This marked the seventh weekly outflow, while analysts estimate that the balance cover 6 months of imports.
This week. Nigeria’s senior unsecured $500 million issued at a coupon rate of 6.375% to support government finance will be due for repayment in the international debt capital market.
While analysts don’t expect the repayment to trigger immediate issues, the naira value of the Eurobond repayment has surged after a decision to float the naira.
Due to fresh demand pressures in the parallel market, the naira lost N19.20 kobo to close at N792.20 per the United States (US) dollar from N773 in the previous week. Analysis of the activities of the Naira at the Forward Contracts Market this week, the local currency weakened across all forward contracts against the dollar.
The naira depreciated 4.5% for a 1-month contract to N801.22. Also, the 3-month forward contract depreciated by 4.3% to N820.24 per US dollar, the 6-month forward contract lost 4.0% to N849.13, and the 1-year depreciated by 3.5% to N910.26 per greenback.
As the foreign exchange market remains volatile in the near term, analysts said they anticipate the market rate to adjust in line with the prevailing forces of demand and supply trade in a calm position against the greenback barring any further market distortions.
Data from the FMDQ platform showed that the total inflows into the Investors & Exporters Window (IEW) increased for the second consecutive month.
FCY inflows jumped by 23.8% month on month to $1.41 billion in June from $1.14 billion in May, analysts at Cordros Capital Limited said in a note to investors.
Foreign inflows spiked by 44.3% in the month to $298.8 million, it remained underwhelming relative to pre-pandemic levels at a monthly average of $1.56 billion in 2019.
Despite the apex bank’s decision to bite the bullet with a significant devaluation of the local currency, Cordros Capital analysts are of the view that foreign investors continue to be cautious about returning in their droves.
“We expect the lingering reforms in the FX market to translate to improvements in foreign currency liquidity conditions over the medium term as market participants’ confidence builds up.
“However, we think foreign investors will likely adopt a wait-and-see approach in the near term as they await the CBN’s actions in clearing its FX backlogs and the direction of short-term interest rates amid high inflation”, Cordros Capital said.
Nigerian non-deliverable currency forwards fell sharply across the curve to a new record low against the dollar on Friday, mirroring falls on the official spot market, Refinitiv data showed.
Non-deliverable currency forwards, a derivative product used to hedge against future exchange rate moves, indicated the markets expect the naira’s exchange rate at N785 to US dollar in one month. #Naira Tumbles, FX Rate to Hit N785 in 1-Month FBNH Rises to N682bn on ‘Special Stock Bet’