The foreign exchange (FX) market ended the five trading days with the naira closing strong against the dollar across the market segments.
On day-to-day trading, the naira appreciated by 5.68 percent as the dollar was quoted at N789.94 on Friday compared to N837.49 on Thursday at the Nigerian Autonomous Foreign Exchange Market (NAFEM), data from the FMDQ indicated.
The FX market recorded significant dollar flows from willing buyers and willing sellers.
Consequently, the daily foreign exchange market turnover, which reflects the volume of transactions in the market, rose significantly by over 100 per cent (129.50%) to $259.84 million on Friday from $113.22 million on Thursday.
Week-to-date, dollar flow increased significantly to $259.84 million on Friday from $81.55 million recorded on Monday, October 23, 2023. This represents over a 100 percent (218.62%) increase.
The local currency gained 8.39 percent as the dollar fell to N1,200 on Friday, stronger than N1,310 per dollar on Thursday at the parallel market, popularly called the black market.
Read also Naira gains as external reserves rise in 3 weeks
On a week-to-date basis, the naira appreciated by 0.83 percent as the dollar traded for N1,200 at the end of the trading week, as against N1,210/$ at the beginning.
From the lowest of N310 per dollar within the week, naira has strengthened to N200/$1 on the black market on Friday.
Nigeria’s government plans to digitalise FX transactions and discourage speculative demands and hoarding of FX in cash.
“I bought dollars at N1,285, and I am now selling at N1,200. Do you know how much I am losing? Everything is government. If the dollar is going up, it is the government; if it is coming down, it is the government, ” a black market operator at the Lagos airport told BusinessDay on Friday.
FX inflows into Nigeria and external reserves have been steadily declining, and the demand for foreign currency remains high, thereby creating pressure on the exchange rate. More so, limited access to FX in the official market (delays, backlogs, documentation requirements), is incentivizing players to purchase FX in the black market.
Nigeria’s foreign exchange reserves, a once-robust bulwark against economic shocks, have dwindled by $3.8 billion which is around 10.2 percent in recent months, like a mighty river running dry to $33.31 bill, according to a report by Cowry Asset Management Limited.
Read also FX pressure worsen as naira hit N1,310/$ on black market
This is the lowest level for the reserve since July 2021, when it hit a low of $33.09 billion.
Nigeria’s inability to reap from the windfall that hit the global oil market following the geopolitical unrest in the east of Europe since February of 2022 has taken a toll on the economy and the lack of dollar liquidity within the central bank’s vault to defend the naira.
This, however, has led to the apex bank relying on the reserves for its continued defence of the local currency in the foreign exchange market.
“We can say that the steady decline in gross official reserves, coupled with FX liquidity constraints, has resulted in a weakening of investor confidence and a general loss of appetite by the offshore community,” analysts at Cowry Asset said.
