Naira ends week with 1.55% loss despite improved liquidity

The foreign exchange market ended the week with naira losing 1.55 percent of its value to the dollar at the Investors and Exporters (I&E) forex window, despite improved liquidity.

This was due to strong demand for dollars by the end users to meet their obligations.

The market closed with the dollar being quoted at N404.67k on Friday as against N398.50k quoted on Monday at I&E forex window.

Liquidity in the I&E window improved as the foreign exchange market turnover rose by 48.5 percent to $333.5 million compared to $224.5 million recorded last week.

Brent crude oil price rose 3.9 percent w/w to $61.48bbl. Domestically, the external reserves fell 0.7 percent w/w to $35.8bn as at February 10, 2021, a report by Afrinvest Securities Limited noted.

The Central Bank of Nigeria (CBN) spot rate traded flat all week at N379.00/$1.00 while rate at the black market appreciated N7.00 Week-on-Week to N473.00.00/$1.00.

At the FMDQ Securities Exchange FX Futures Contract Market, the total value of open contracts settled at $7.3bn, down 0.2 percent ($11.6m) from the prior week. The January 2022 instrument (contract price: N449.52) had the most demand with additional subscription of $10.0m putting the total value at $150.4m. Meanwhile, there was a total sell-off of the December 2024 instrument (contract price: N575.29).

“In the coming week, we expect naira to remain within similar band across the different FX segments,” analysts at Afrinvest said.

At the money market, the fixed income market was bearish as yields across markets rose by 200bps to average 5.7 percent from 3.7 percent in the previous week, a report by Greenwich Merchant Bank stated.

Although the Nigeria treasury bills space closed bearish Week-on-week, the market traded flattish in the first three sessions of the week as investors were cautious in the run-up to the Primary Market Auction (PMA) on Wednesday.

Following a better-than-expected spike in stop rates in the PMA, average yield rose by 50bps to 1.5 percent from 1.0 percent last week, triggered by selloffs across the curve.

Stop rates at the PMA cleared higher as investors sought higher returns. Thus, the CBN sold the 91-day (NGN24.7bn), 182-day (NGN16.1bn), and 364-day (NGN90.1bn) instruments at 1.0 percent, 2.0 percent, and 4.0 percent apiece, from previous stop rates of 0.55 percent (91-day), 1.3 percent (182-day), and 2.0 percent (364-day), respectively. The total amount allotted at the auction (NGN130.9bn) was 77.1 percent of the offer (NGN169.8bn).

The report noted that the Open Market Operation the (OMO) market sustained a bearish momentum that lasted until the CBN’s OMO sales on Thursday. At the NGN169.0bn PMA, the Apex bank maintained the stop rates for the 362-day bill at 10.10 percent.

Also, it did not sell the bills at the upper range of bids just like it had done in the prior auction. Overall, the OMO yield curve expanded by 4.7 percentage points WoW to 6.7 percent from 2.0 percent.

“Next week, we anticipate the maturity of OMO bills worth NGN260.2bn to hit the banking system, furthering a robust system liquidity,” analysts at Greenwich Merchant Bank said.

Funding pressures subsided this week, pegging the Open Buy Back and Over Night rate at 4.5 percent and 4.8 percent down from 17.5 percent and 18.0 percent, respectively.

“Save the maturing OMO bills, we do not expect any significant inflow into the financial system and on that basis, we project that funding pressure might intensify next week,” the analysts said.

In the Bonds market, yields notched higher by 100bps WoW to log at 9.0 percent compared to its previous close of 8.0 percent. The expansion is attributable to the repricing of instruments across the tickers on the expectation of a reversal of the low-interest rate environment that ushered in the new year. Across the market, the medium (+170bps), the short (+114bps), and long (+30bps) segments all struck a bearish chord from last week.