There is hope for foreign exchange users this week as the local currency is expected to appreciate at the inter-bank market due to anticipated increase in foreign portfolio inflows at the bond auctions which would likely increase dollar supply.
This week, the Debt Management Office (DMO) will auction N100 billion in three local currency debt issues (all re-openings) on Wednesday, September 17, 2014. Specifically, the DMO will issue N15 billion in the 3-year 13.05% FGN August 2016 note; N50 billion in the 10-year 14.20% FGN March 2024 paper; and issue N35 billion in the 20-year 12.1493% FGN July 2034 bond.
Analysts at Cowry Asset Management Limited expect increase in their respective marginal rates following recent rise in inflation rate (8.3% in July).
“At the OTC market, we expect bond prices to rebound on bargain hunting activities amid anticipated boost in financial system liquidity”, the analysts said.
Last week, there was sustained upward pressure on the USD/naira exchange rate as evidenced by the increase in rates across all market segments. Naira on Monday depreciated by N0.01k to close at N155.74 against the US dollar at the official market, after about six months of trading for N155.73/$. Against the backdrop of limited dollar sales by oil majors, the local currency depreciated by 0.42% (or N0.68) to N163.24/$1 at the interbank segment. Similarly, at other alternative market segments, the local currency depreciated by 0.30% (or N0.50) each- to N167.00/$1 at the bureau de change (BDC) market and to N168/$1 at the parallel market segment.
However, the CBN offered USD600 million but sold a total of USD599.96 million (or N93.43 billion) to end users at the Retail Dutch Auction (RDAS) – a 7.53% decrease from the USD648.83 million (or N101.04 billion) sold in the preceding week.
Also this week, the Federation Accounts Allocation Committee (FAAC) is expected to disburse funds into the accounts of the three tiers of government. Consequently, interbank rates are expected to moderate as analysts anticipate improvement in financial system liquidity.