Naira falls by 6% as FX market crisis gets messy

Naira

Fri, 13 Sep 2024 Source: dmarketforces.com

The naira fell sharply by about 6% in the foreign exchange market amidst untimely FX auction sales to authorised dealer banks. Positive expectations have continued to be dampened by the uncertainty surrounding the FX auction’s timing.

Nigeria’s gross external reserves balance increased to $36.730 billion on September 10 due to two consecutive inflows. Weak to date, the foreign reserve has increased by $338 billion, MarketForces Africa reported.

Despite a sustained FX liquidity challenges, analysts said the apex bank has no scheduled FX auction timeline with rather infrequent intervention for the naira in the currency market. The Central Bank of Nigeria (CBN) is playing hide and seek with forex market intervention at the time it is most needed to reduce pressure on the naira.

On the other hand, the market awaits FX sales to boost foreign currency liquidity in the market to strengthen the naira position against the US dollar, the dominant currency. According to FX spot data from the FMDQ platform, the naira depreciated by 5.84%, closing at ₦1,649.76 per US dollar at the official market.

In the previous day, the local currency rallied following the announcement that Nigeria’s inaugural domestic US dollar bond sales attracted $900 million from retail investors. Also, there was a huge inflows of $250 million that boosted the gross external reserves balance at the beginning of the week.

The confidence of key actors and participants at the foreign currency market had increased but it did not take long time before it fizzled out. Despite inability to keep gain, some analysts still believe that that the naira is undervalued at the current rate.

The Central Bank of Nigeria (CBN) had made the call that the naira is grossly undervalued,, and some international rating agencies and investment banking firms keyed into it as the basis for their projection.

Naira bulls like Goldman Sachs, Financial Derivatives Company, Renaissance Capital Limited, and Fitch Ratings have different rate expectations for the year. Fitch Ratings N1,450 exchange rate per US dollar is the closest to the going market rates as of September, according to an estimate tracked by MarketForces Africa.

“The naira cannot do better than the current pattern in the official window. To pump the naira strength, the Central Bank of Nigeria (CBN) would require stable FX auction sales that the market will be aware of for confidence to climb,” macro research team at LSintelligence Associates said in a chat.

The Naira closed at ₦1,646 to the US dollar in the parallel market after the apex bank announced $20000 FX sales to Bureau de Change (BDC) operators last week.

In the global commodities market, U.S. crude oil rose by more than 2% to surpass $69 per barrel on Thursday as Hurricane Francine disrupted oil production in the Gulf of Mexico before hitting Louisiana.

Brent prices increased by 2.79% to $72.58, while WTI prices climbed by 3.30% to $69.45. Gold prices surged by over 1% to reach a record high on Thursday due to expectations of an interest rate reduction by the Federal Reserve following indications of a slowing U.S. economy.

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