The foreign exchange market closed the week with Naira weakening by 0.26 percent amid low dollar liquidity, which declined by 8.36 percent at the Investors and Exporters (I&E) forex window.
The foreign exchange market daily turnover declined by 8.36 percent Week-on-Week to $46.43 million at the end of trading on Friday from $50.67 million recorded at the opening trading session.
Naira weakened by 0.26 percent Week-on-Week to N410.00 at the end of trading on Friday compared to the opening rate of N408.90k at the I&E window.
The Naira depreciation was attributed to higher demand for dollars by the end-users amid a shortage of the greenback.
On Monday naira strengthened by 0.27 percent to close at N408.90k compared to N410.00k closed on Friday at the I&E window.
Nigeria’s currency depreciated by 0.21 percent as the dollar was quoted at N409.75 on Tuesday as against the last close of N408.90. Most participants maintained bids between N390.00 and N412.00 per dollar.
On Wednesday naira steadied across foreign exchange markets as liquidity improves. The local currency also steadied at N409.75k to the dollar at the I&E forex window on Wednesday.
Currency traders who participated in the trading on Wednesday maintained bids at between N394.00k and N412.00k/$.
On Thursday Naira strengthened marginally by 0.02 percent at the Investors and Exporters (I&E) forex window despite the drop in dollar supply.
At the black market and Bureau De Change (BDC) segment of the foreign exchange market, Naira remained unchanged at N485 per dollar.
Oil price declined five days in a row following a stall in vaccine rollout to reach $62.9/bbl, down 10 percent week on week (w/w). Brent oil price is expected to remain sticky downward as Iran frustrates the OPEC+ effort to tighten w/w, according to a report by Afrinvest Securities Limited.
On the local scene, Nigeria’s external reserves declined by 0.60 percent week/week to $34.4bn (3/17/2021).
At the FMDQ Securities Exchange (SE) FX Futures Contract Market, the total value of open contracts of the Naira closed at $6.4bn, up to $221.4m (+3.6%) from $6.2bn in the previous week.
The MAR 2022 instrument (contract price: N437.88) received the most buying interest in the week with an additional subscription of $4.0m which took total value to $5.5m. Conversely, the JUL 2021 instrument (contract price: N425.08) saw sell-offs, as total value declined $4.7m to $215.4m.
“Next week, we expect rates to remain in the same band across various segments of the market, analysts at Afrinvest said.
At the Money Market, system liquidity levels remained strong all week to close at N602.6bn despite the auctions. The CBN mopped up N100.0bn via Open Market Operation (OMO) auction following maturities worth N143.4bn.
The report noted that OMO sale was oversubscribed at 3.5x on average, with the 362-day instrument enjoying the most demand. Rates remained unchanged at 7.0 percent, 8.50 percent and 10.10 percent for the 96, 180 and 362-day instruments respectively.
In our view, the strong demand is expected to be sustained in subsequent auctions due to robust system liquidity and attractive rates to lure FPIs.
At the T-bills auction, the CBN sold N61.9bn, N14.8bn higher than the amount on offer. Stop rate for the 364-day instrument inched higher by 50bps to 7.0 percent while the 91 and 182-day instruments remained at 2.0 percent and 3.50 percent respectively. Demand was strong across the board at a bid-to-cover ratio of 4.5x, 1.3x and 2.7x for the 91, 182 and 364-day instruments respectively.
Accordingly, money market rates moved in line with system liquidity dynamics with OBB and OVN rates opening the week lower at 12.50 percent and 12.80 percent respectively.
Rates trended lower to 10.30 percent (OBB) and 10.50 percent (OVN) on Tuesday, but trended higher for the rest of the week, settling at 25.0 percent and 25.50 percent. Similarly, the average T-bills yield in the secondary market closed at 3.60 percent, up 72bps w/w.
The 91 and 182-day instruments saw sell-offs as yield rose 132bps and 85bps w/w respectively while the 364- day instrument closed flat.
“In the week ahead, we expect the CBN to mop-up liquidity as OMO maturities of N50.0bn and coupon payments of N52.8bn hit the system. Nevertheless, we expected rates to trade at a similar band, the analysts said.