Naira Struggles Unsuccessfully to Retain Value in Currencies Market
The Nigerian local currency, Naira, struggles to maintain value in the foreign exchange market, against the United States dollar amidst weak external reserves which closed the week below $36 billion.
Just as demand continues to outstripping supply, mounting pressure on the local currency resulted to some sort of automatic devaluation in the Investors and Exporters window.
After trading at ₦410 to dollar at the investors and exporters window just last week, analysts are projecting that the local currency will be stable this week following stability in the global prices of oil.
While the oil sector continues to maintain upward trajectory due to strong demand among major economies, it is yet to impacts Nigeria’s financial position.
External reserve has maintained downward trend from the beginning of the year, thus reducing the monetary authority war chest for supporting Naira in the FX market.
Specifically, apex bank dollar supply at the investors and exporters window still fall below the pre-pandemic period, thus widening gap between the official exchange rate, parallel market rate and investors window.
Trading data shows that in the Parallel FX market, the Naira fell by ₦2.80 on every dollar rate from an average of ₦473.00/USD to ₦475.80/USD week on week.
At the Investors window, the local currency rates closed the week at an average of ₦409.43 from ₦400.83/USD in the previous week, representing a decline of ₦8.60 on every dollar demanded.
In the week, the Central Bank of Nigeria (CBN) intervened through its periodic supply of US Dollars in the FX market.
The apex bank offered a total of $100 million via the Secondary Market Intervention Sales (SMIS) Wholesale Window, Afrinvest said in a market report.
This came just oil price maintained strong uptrend rising above $60 per barrel in the international market.
Brent crude oil price rose 2.0% week on week to $63.68 per barrels on the back of depleted oil reserves and weather related issue in Texas, United States
Meanwhile, the nation’s external reserves declined 0.9% week on week to $35.5 billion amidst low foreign inflow into the economy.
According to Afrinvest, the CBN spot rate traded flat all week to close at ₦379.00/$1.00, unchanged from the prior week.
At the parallel market, rates opened at ₦473.00/$1.00 and closed ₦478.00/$1.00, depreciating ₦5.00kobo week on week.
At the Investors’ & Exporters’ (I&E) Window, the NAFEX rate opened at ₦405.13/$1.00 and closed at ₦410.00/$1.00 on Friday, depreciating ₦5.33kobo week on week from ₦404.67/$1.00.
Activity level in I&E Window fell 22.4% to $258.6m from $333.5 million recorded in the previous week.
At the FMDQ Securities Exchange (SE) FX Futures Contract Market, the total value of open contracts of the Naira settled at $7.5bn.
This translated to an increase of $199.2 million or +2.7% from $7.3 billion in the prior week following new subscription in the SEP 2022, DEC 2022 and JAN 2026 instruments.
FX Arbitrage: CBN Will Have to Make Big Call on Devaluation –Agusto
The JUN 2022 instrument at contract price of ₦449.95 received the most buying interest in the week with additional subscription of $22.7 million which took total value to $25.2m.
On the other hand, the JUL 2021 instrument (contract price: ₦426.58) was the least subscribed, with an additional subscription of $0.5m for a total value of $206.6m.
“Next week, we expect rates to continue to trade within a tight band across different segments of the market”, Afrinvest said.
Naira Struggles Unsuccessfully to Retain Value in Currencies Market
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source https://dmarketforces.com/naira-struggles-unsuccessfully-to-retain-value-in-currencies-market/