Nigerian Naira Extends Rally as Corporates’ FX Demand Reduces
The Nigerian naira extended its momentum against the US dollar in the official foreign exchange market, driven by robust FX liquidity and easing demand for international payments.
The local currency gained against Western currencies on improved FX receipts and an improved outlook, driven by elevated global oil prices and a weak US dollar index.
The US dollar weakened as demand for safe assets declined amid divergent expectations about the Federal Reserve’s rate cut at the next FOMC meeting.
Supported by post-reforms optimism, the local currency strengthened by 0.22% to settle at ₦1,357.65per dollar at the Nigerian foreign exchange market (NFEM) window on Thursday,
Intraday FX transactions were executed between N1356 and N1359.5000 per greenback, reflecting a lack of demand pressure at the official window.
Traders reported a slowdown in activity in the interbank FX market, resulting in declines in US dollar turnover and deal volume.
According to data obtained from the CBN, interbank FX transactions plunged by more than half from the previous day, as banks recorded a sharp cutback in customers’ US dollar demand.
NFEM Interbank FX turnover settled at $79.097 million, down by more than 53% on the day from $168.758 million reported on Wednesday.
The number of FX deals closed at the interbank window reduced to 98 from 190 the previous day, according to data released by the CBN.
Oil prices fell Thursday after Energy Secretary Chris Wright claimed that exports through the Strait of Hormuz are higher than many independent estimates. U.S. West Texas Intermediate futures fell 2.4% to close at $81.25 per barrel.
Brent crude, the international benchmark, lost about 2% to settle at $87.07. Prices are up about 4% this week as a deal between Washington and Tehran to increase ship traffic through Hormuz still has not materialised.
Oil exports through Hormuz have neared a seven-day average of 9 million barrels per day, Wright said Wednesday. Exports from the Gulf rise to around 15 million bpd when pipeline flows are included, he said. About 20 million bpd of oil and products moved through Hormuz before the war.
The export data provided by the energy secretary is much higher than the estimates of many independent firms. TD Securities, for example, has put Hormuz exports at around 5 million bpd. This is “nowhere near enough for the market,” said Ryan McKay, director of commodity strategy at the firm, in a Wednesday note.
Wright said in a social media post Wednesday that the U.S. military and Department of Energy maintain “the best available data related to oil and oil products leaving the Arabian gulf.”
“Many private businesses undercount the number of ships leaving the Strait of Hormuz due to ships moving covertly through the waterway,” he said.
Oil demand is expected to fall by 1.6 million barrels per day this year, about 510,000 bpd more than previously anticipated, according to the International Energy Agency. Renewed hostilities in the Gulf have undermined efforts to boost global oil supplies, the IEA said. Supply was 6.3 million bpd lower year-on-year in July with 8.3 million bpd of Gulf production shut in, it said.
The security situation in the Middle East remains precarious for shippers, with attacks on vessels in the Gulf of Oman and the Red Sea this week. Iran’s Houthi allies in Yemen, meanwhile, claimed Thursday that they targeted a refinery in Saudi Arabia’s Jizan region with drones.
The U.S. and Iran disputed control of the Strait of Hormuz this week. Tehran claims that it has closed the strait and it will only reopen the waterway after Washington meets its demands. President Donald Trump, meanwhile, claimed that the U.S. has total control over the Strait of Hormuz. Global Equities Markets Mixed as Rising Energy Costs Dampen Momentum
