Naira Plummets as Markets Discount CBN FX Intervention
The Nigeria’s identity has continued to be dented as the local currency wobbles amidst rising external reserves, thin FX interventions.
In the official currency market, the naira fell to N1,641.27 per US dollar, a foreign currency that dominates transactions in Africa’s most populous economy.
Across the FX market segments, the Naira waned as FX market intervention by the Central Bank of Nigeria (CBN) was insufficient to upturned exchange rate direction.
Last week, the Apex Bank sold US$50 million to authorised dealer banks via FX auction to boost US dollar liquidity in the official window. This failed to redirect exchange rate as demand for foreign currency surged.
The economic conditions of today beat imagination, analysts said in series of discussions with MarketForces Africa, noting that the naira outlook is uncertain in the face of inadequate policy formulation by the authority.
At the Nigerian autonomous foreign exchange market, activity level increased 1.9% or $22.9 million to $1.2 billion, according to Afrinvest Capital Limited.
Analysts at Cordros Capital Limited also stated that FX trades were consummated within the N1,540– N1,650 band in the currency market in the same period.
The naira fell 0.6% against the base currency or US dollar to 1,641.27 on Friday in the official market, spot data from the FMDQ platform confirmed.
Nigeria’s external reserves ended the week at $38.67 billion, providing more than 12 months import cover based on latest trade data, analysts said.
In the forward market, one month contract gained 0.6% to close at N1673.94 per US dollar and three months forward contracts gained 0.8% to close at N1745.22 per greenback.
On the other hand, six month FX forward contract depreciated by 0.3% to close at N1855.46 per US dollar while one year contract dipped by 1.7% to N2.086.30.
“The naira is expected to trade with less volatility in the short term, given that the CBN sustains efforts to keep the naira stable through intervention in the FX market and improving Nigeria’s carry trade by keeping naira yields elevated”, analysts at Cordros Capital Limited said.
In the global commodities market, uncertainties persisted on both the demand and supply sides. Oil prices increased for the second consecutive week as Israel prepares to respond to Iran.
Brent crude rose by 0.40% to $79.17 per barrel, and WTI increased by 0.32% to $75.75 per barrel, according to market reports. Also, Gold prices rose following U.S. inflation data, strengthening the possibility of rate cuts this year and keeping the dollar from reaching recent highs.
Additionally, demand for gold as a safe-haven asset due to the tensions in the Middle East caused gold prices to rise by 11 bps to $1,672.40 per ounce, AIICO Capital Limited said in a note. #Naira Plummets as Markets Discount CBN FX Intervention
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