US dollar inflows into Nigeria's FX market hit 5-month high

US dollar inflows into the Nigerian autonomous foreign exchange (FX) market hit a 5-month high in October, investment firms said, quoting data from the FMDQ platform.

This has helped in limiting outflow from Nigeria’s gross external reserves, which printed at $39.77 billion last week, based on official data. Analysts said foreign investors’ confidence has increased significantly in the recent time, and the US Fed rate cut is expected to drive more hot money into Africa in the coming months.

Based on the data obtained from FMDQ, total inflows into the Nigerian Autonomous Foreign Exchange Market (NAFEM) rose to a five-month high in October, increasing by 40.2% to USD3.04 billion in October from USD2.17 billion in Sept., Cordros Capital Limited stated.

The improvement was primarily due to a substantial increase in inflows from foreign sources which accounted for 44.6% of total inflows. In comparison, collections from local sources which accounted for 55.4% of total inflows dropped for the second consecutive month, analysts said in the report.

Specifically, inflows from foreign sources increased by 292.7% to USD1.37 billion from USD345.50 million in September, reflecting the highest level in seven months in line with improved carry trade opportunities in the capital market over the review period.

As a result, higher accretions were recorded across the FPI (+510.9%) and FDI (+44.6%) segments, while inflows from other corporate segment (-15.1%) dropped.

Elsewhere, inflows from local sources declined by 7.5% to USD1.69 billion in October from USD1.82 billion Sept, driven by declines across collections from the individuals, CBN, and non-bank corporates segments, amid a marginal improvement in the exporters/importers segment.

The breakdown showed that individual supply of US dollar declined by 30.6% in Oct, CBN reduce US dollar support in the market by 14.3% and non-bank corporate inflows went down by 8.6% below Sept record.

On the other hand, FX inflows from exporters rose 0.6% in the month, keeping the FX market liquidity uptrend. “While we acknowledge the recent liquidity influx from foreign investors, we believe this is unlikely to be sustained given the unfavourable macroeconomic conditions”, Cordros Capital Limited said,

Analysts anchored their views on weak structure of the Nigerian FX market, and sustained volatility in the naira. They anticipated that the limited inflows from the CBN may pose downside risks to overall liquidity conditions in the near term, potentially dampening market confidence and heightening pressure on the naira.

Afrinvest Capital Limited said the activity level at the NAFEM window improved as total turnover increased to $166.6 billion last month. Looking ahead, analysts said they expect Naira to trade within the current band with little room for volatility provided there is no significant inflow to boost FX supply.

In the global commodities market, oil prices climbed 1% to a one-week high amid reports of Iran planning a retaliatory strike on Israel from Iraq.

Brent crude reached approximately $73.36 per barrel, while WTI was around $69.76. Meanwhile, gold prices remained relatively stable. Gain from a weaker U.S. dollar, following disappointing job growth data and increased safe-haven demand, were balanced by rising Treasury yields, with gold trading at about 2,750.70 per ounce.