Naira: Currency Speculation Trends as FX Gap Widens

With a widening gap between official and open market exchange rates, currency speculators in the Nigerian economy recorded a surge in FX spread on the US dollar as active foreign currency users – manufacturers and Importers continued to patronise Bureau de Change.

Last week, the Nigerian naira rallied against the United States (US) dollar at the investors’ and exporters’ foreign exchange window despite a sustained shortage of greenback in the economy. Nigeria is currently facing FX scarcity challenges, and uncertainties in the economy remain downside to the outlook.

At the official window, the naira gained 0.33% week on week to close at N740. 60 from N743.07 in the previous week, data from the FMDQ OTC FX market showed.  In the recent week’s foreign exchange market, as naira bumped against the US dollar within the parallel market.

The Central Bank continues to formulate policy to attract foreign inflows into the country amidst negative interest yield on government securities in the market. FX shortage in the country has continued to impact the naira exchange rate as supply side remained below pre-pandemic levels.

Nigeria’s external reserves remained below $34 billion, data from the CBN website showed despite an increase in prices of crude. Brent crude oil saw an uptick of 0.8% last week, to reach $86.88 per barrel per day despite renewed economic concerns in China and a large inventory build-up in the US.

Nigeria’s brass river and qua iboe grades closed the week at $91.24 per barrel last week, data obtained from the global market by Nairalaw.com showed.

In the parallel market, the exchange rate weakened by N64 or 7.26% week-on-week, plummeting to N945/$1 from the previous N881 as the widening FX gap attracted speculative practices. Manufacturers’ and importers’ interest in alternative avenues beyond the official market, exacerbates the currency’s downward trajectory, Cowry Asset Management said in its market update,.

The FMDQ Securities Exchange (SE) FX Futures Contract Market portrayed mixed dynamics for the naira against the US dollar across contract tenors. According to analysts, forward rates appreciated by 0.17% and 0.19% respectively for the 1-month and 6-month contract tenors, reaching N794.67/$1 and N838.28/$1.

Conversely, the dollar exhibited dominance over the local currency, appreciating by 0.08%, 0.21%, and 2.59% across the 2-month, 3-month, and 12-month contracts. Persistent demand pressures across various tenors fueled these fluctuations.

“We see the Nigerian foreign exchange market continues to face challenges with the naira’s depreciation against the greenback even as the oil market continues to show buoyancy with prices rising on global supply concerns.

“In the coming week, we anticipate the naira to trade in a relatively calm band at the I&E fx markets barring any market distortions that may disrupt supply by the CBN”, Cowry Asset Management Limited said in its market report. #Naira: Currency Speculation Trends as FX Gap Widens Treasury Bills Yield Steadies, Money Market Rates Decline
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