The gains the local currency recorded for three consecutive days last week is expected to continue this week as demand pressure decreases at the foreign exchange (FX) market.
Naira depreciated at the interbank FX market last week following the commencement of the single market structure. On Monday, the exchange rate closed at N258.10/$ (as against a fixed rate of N199.10/$ in the preceding week), as the CBN intervened directly in the interbank market by immediately selling $532.87 million and indirectly at the secondary market where it sold forward contracts worth $3.47 billion to clear built up demand.
On Tuesday, only $360,000 changed hands between traders, following which the naira depreciated to N282.1/$. Consequently, the apex bank intervened on Wednesday by selling $76.8 million and exchange rate rose slightly to N283.6/$.
On Thursday, however, the naira appreciated to N281.97/$. The local currency appreciated week-on-week at both the Bureau De Change and parallel market by 3.38 percent and 5.48 percent to N343.0/$ and N345.0/4, respectively.
Analysts at Cowry Asset Management Limited anticipate some level of stability in exchange rates as they expect moderation in demand for FX by end user.
The CBN has issued operational requirements to guide the externalisation of the differentials on OTC FX Futures contracts for Foreign Portfolio Investment (FPIs).
This is to facilitate the operational efficiency of the emerging OTC FX Futures market, organised by FMDQ OTC Securities Exchange (FMDQ).
In a circular to all deposit money banks, the CBN said along with the requisite certificate of Capital Importation (CCI), all participating FPIs in the OTC FX futures market are required to present an OTC FX futures settlement advice (to be issued by FMDQ) to facilitate the externalisation of the settlement amount of the OTC FX futures contract.
“For the avoidance of doubt, requests for repatriation of settlement amount of OTC FX futures contracts by FPIs that are not accompanied with the requisite settlement advice from FMDQ, and the CCI should not be processed by any deposit money bank in Nigeria,” the circular, signed by Olih S. A. for special assistant/head, financial markets department, noted.
At the fixed income market, analysts at Afrinvest Securities Limited see the bonds market witnessing increased buying pressure, as they expect yields to soften. Yields of the Nigerian sovereign Eurobonds are expected to moderate as the impacts of the FX reforms will strengthen investor sentiment despite Fitch Rating’s decision to downgrade Nigeria’s credit rating.
