Exchange rates across the foreign exchange markets swing in different directions amidst a plan by the Central Bank of Nigeria (CBN) to boost the purchasing power of the local currency.

The Nigeria naira gained weight across foreign exchange markets as an invisible hand balanced demand and supply forces. Data from FMDQ Exchange showed that the US dollar was exchanged with N791 at the Nigeria Autonomous FX market on Friday.

The naira has crossed N800 per US dollar in the official window while the FX spot rate crossed N1000 at the London Stock Exchange. FX volatility peaked after a devaluation of the naira with the parallel market rate crossing N1,300 amidst demand pressures. 

The exchange rate at the parallel market has improved as the monetary authority boosted market sentiment with FX backlog repayment and the removal of restrictions on 43 items banned from accessing forex.

Reversing the positive sentiment, the Naira depreciated by 6.17% to close at N1,135 per dollar in the parallel market.  Individuals and corporates were noted to be channelling seasonal FX demand to Bureau de Change operators, an insider in the business told MarketForces Africa.

A slowing economic growth drove markets to expect the Central Bank of Nigeria to refrain from further interest rate hikes, partially offsetting pressure on the local currency.

The outlook for the naira is becoming increasingly negative and the scope is growing for a much bigger drop in the days and weeks ahead.  Fundamental and technical factors are becoming increasingly negative, according to forex analysts.

Nigeria’s gross reserves decreased by USD65.56 million to close at USD33.31 billion, according to a figure posted on the Central Bank’s website. Brent crude advanced by 2.19% to $79.12 per barrel, while the West Texas Intermediate (WTI) crude oil also increased by 2.15% to $74.47 per barrel. 

Market data indicates that the US dollar was headed for its largest weekly drop for months against the euro, yen and franc on Friday. Forex traders sold in anticipation of almost 100 basis points of U.S. interest rate cuts next year. The USD index, which tracks the dollar versus a basket of six currencies drops, keeping a lid on the upside.

Analysts at Cordros Capital expect FX liquidity conditions to improve slightly, albeit still frail relative to historical levels, as it appears the CBN has regained its momentum regarding FX reforms.

“If the recent convincing actions by the policymakers to turn the tide are sustained, we expect the local currency pressures to ease”, analysts said in a note.

In the forwards market, the naira rates across the 1-month contract appreciated by +1.0% to N864.79, 3-month forward contract gained +0.1% to N889.78. Also, the forward contract for 6 months rallied by +0.1% to N917.14 while the 1-year contract depreciated by 0.8% to N976.61.

Moody’s said in a note that the unification of Nigeria’s official foreign exchange rates and effective currency devaluation come with short-term risk, but may have several longer-term credit positive implications. #Rising FX Demand Keeps Lid on Naira Upside

Naira Devaluation Deepens Economic Crisis in Nigeria