The naira depreciated to N1681 against the US dollar in the foreign exchange (FX) market as increased demand for forex exposed persistent supply crisis. Spot data from the FMDQ platform showed that the naira depreciated by 0.62%, closing at ₦1,681.65 per US dollar at the official market.
The current exchange rate appeared to breach the Central Bank of Nigeria (CBN) reaction points, the first time in months when exchange rate was allowed to cross the fear index.
MarketForces Africa reported that the Apex Bank FX intervention has been on decline, and this has caused spot rate to get worse even when there have been significant US dollar inflows into the economy.
To increase confidence in the FX markets, the CBN plans to automate trading platform in December while the market expects test run to begin in November, 2024. With many initiatives, the authority has been striving unsuccessfully to remove lacuna surrounding FX demand and supply to keep the naira on a stable path.
“The CBN has good intention to solve the exchange rate riddle. It will be a matter of time to finally settle at a point where normalization will be achieved.
“Before then, the authority must be out for naira as the local currency could not survive willing buyer, willing seller model – it will not work except there is plan to ban some items on import lists”, a financial expert who prefer not to be mentioned told MarketForces Africa.
The Apex Bank weekly FX interventions have achieved no results in keeping exchange rate volatility in check, analysts said, noting the CBN may have discovered that retail Dutch Auction System could open external reserves to higher risks.
In August, the CBN re-introduce previously abandoned retail Dutch Auction System but could not carry on due to the size of bid amounted to $1.1 billion. Data from the Apex Bank showed that gross balance in the nation’s external reserves rose to about $40 billion this week.
Despite this, FX intervention sales to authorized dealer banks has slowed down. In the parallel market, the naira closed at ₦1,725 to the US dollar, losing N10 over the day due to renewed pressure. Albeit, exchange rates gap between official and parallel market settled at N44 today.
Elsewhere, oil prices traded on mixed note as the U.S. dollar surged following Donald Trump’s presidential election victory. Brent Crude decreased by 0.35% to $75.30 per barrel, while West Texas Intermediate (WTI) rose by 0.05%, closing at $72.00 per barrel.
These fluctuations reflect ongoing market volatility influenced by geopolitical tensions and supply-demand dynamics, analysts said. Investors anticipate that Trump’s policies may strengthen the dollar, necessitating high interest rates to counter inflation, potentially pressuring China’s economy and reducing demand.
Similarly, gold prices dropped significantly after Trump’s projected win boosted the dollar to a four-month high. With the upcoming Fed rate decision, gold faces further downside risk, currently trading at $2,673.00 per ounce.
According to data from FMDQ, total turnover in the Nigerian autonomous foreign exchange market (NAFEM) declined by 55.69% or US$204.14 million week on week to close at US$162.41 million on Friday.
The NAFEM window recorded an inflow of US$723.3 million for the week. The CBN accounted for 18.4% of the total inflow, FPIs 26.7%, non-bank corporates 22.9%, exporters 28.2%, and others accounted for 3.8%
*source: Market Forces, Africa
