Zina Kumok
Updated on: October 13, 2024 4:06 am GMT
The Nigerian Naira has made significant strides in the foreign exchange market, appreciating against the US Dollar as the Central Bank of Nigeria (CBN) steps in to bolster liquidity. This rise comes as dollar supply surges, illustrating a vital moment for the Nigerian economy amid fluctuating market conditions.
Naira Strengthens Amid Increased Dollar Supply
Recent reports indicate that the Naira’s value against the dollar has improved notably this week, closing at N1,541.52 at the Investors and Exporters (I&E) window. This represents a remarkable achievement considering the previous week’s rates, where the Naira stood at N1,546.41. The positive movement in the Naira’s value coincides with a dramatic 117% increase in dollar supply at the foreign exchange market, which has boosted overall liquidity.
Here are key statistics regarding the Naira’s performance:
- The dollar supply increased from $87.51 million to $190.57 million on Friday.
- This marks an $103 million rise in just one day, showcasing robust activity in the market.
- The Naira appreciated by 7.05% to N1,539.65 at the NAFEM following a $20 million intervention by the CBN.
This upward trend is not only attributed to the rise in dollar supply but also reflects the proactive measures taken by the CBN to stabilize the exchange rate and improve market conditions.
Central Bank’s Interventions
The CBN’s actions included selling $20 million to authorized dealer banks, aiming to reset the direction of the foreign exchange market. By intervening with targeted sales, the central bank strives to prevent significant depreciation, especially as the market had been flirting with rates nearing N1,700.
Data from the FMDQ platform supports these interventions:
– The Nira’s trading ranged from N1,499 to N1,668 at the NAFEM, concluding the week at N1,546.5, marking a week-on-week appreciation of 2.9%.
– Analysts noted that total turnover at the NAFEM rose by 4% to $1.2 billion.
The market’s response has shown optimism, with increased participation from various sectors contributing to the influx of currency available in the official window.
Contributions to FX Liquidity
The improved liquidity in the foreign exchange market comes from various stakeholders, each playing a crucial role:
– Non-bank corporate businesses contributed approximately 41.2% of the total dollar influx.
– Foreign Portfolio Investors (FPIs) added 12.3% to the market’s supply.
– Exporters enhanced the supply by 34.8%.
The engagement of these entities indicates a collaborative effort to strengthen the Naira and enhance overall market stability.
Market Reactions and Potential Implications
As the Naira rises against the dollar on the official market, the gap with the parallel market has widened slightly, raising concerns about speculative trading. Currently, the unofficial exchange rate stands at an average of N1,664 per dollar.
Market analysts predict that continued fluctuations may spur speculative activities, potentially undermining the recent gains. The upcoming 297th Monetary Policy Committee meeting is expected to address these issues, as Nigeria navigates through intricate economic dynamics.
Global Context and Commodities Impact
Outside of Nigeria, global oil prices faced a decline due to impending decisions from the U.S. Federal Reserve regarding interest rates. Brent crude dropped by 0.77% to $73.13, and West Texas Intermediate (WTI) decreased by 1% to $70.48. Such global economic indicators can also influence local markets, including the Nigerian foreign exchange landscape.
Nevertheless, gold prices have surged amid a weaker dollar, trading at around $2,597.70 per ounce. This highlights a dual trend in the commodities market where traditional safe havens flourish when dollar strength wanes.
Conclusion
The Naira, Nigeria’s money, is getting stronger, which is a good sign for the country’s economy. This change is happening because there’s more US dollars available and the Central Bank of Nigeria (CBN) is taking smart steps to help. Everyone involved in buying and selling money needs to pay close attention to what’s happening both in Nigeria and around the world. While investors have reasons to be hopeful, it’s important to stay alert because things can change quickly. Figuring out these challenges will be key to keeping the Naira strong compared to the US dollar in the future.
