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Naira ends week with loss amid 83.94% liquidity rise

Cashless transactions surge 88% to N237trn in Q1

Naira ended the five trading days of the week with a loss of 3.78 percent despite increased dollar liquidity of 83.94 percent on the official market.

The foreign exchange (FX) market opened the week on Monday October 16, 2023 with one dollar being quoted at N778.80 and ended the week at N808.27/$ on Friday at the Nigerian Autonomous Foreign Exchange Market (NAFEM).

NAFEM is the market trading segment for Investors’ Exporters’ and End-users that allows for foreign exchange (FX) trades to be made at exchange rates determined based on prevailing market circumstances.

During the trading days under review, there was increased dollar supply as the FX market turnover rose by 83.94 percent to $79.26 million on Friday, the last trading day from $43.09 million recorded on Monday, October 16, 2023, data from the FMDQ showed.

Read also Naira races to N1,170/$ on dollar shortage

The combination of demands from 43 items restored to access foreign exchange and demands for school fees, among others, drove the sharp fall in the value of naira last week, analysts said.

At the parallel market, popularly called the black market, the naira weakened by 1.82 per cent as the dollar opened the week at N1,149 on Monday and closed at N1,170 on Friday.

Nigeria’s external reserves declined by 6 basis points ($19.1m) to $33.2 billion as of October 18, 2023.

“The Nigerian Naira faced continued depreciation this week, reaching new lows, underscoring the challenges the Central Bank of Nigeria faces in defending the currency,” analysts at Cowry Asset Management Limited said in a report.

According to the report the depreciation against the US dollar amounted to 5.68 percent week-on-week at the official market, closing at N808.27/$1, primarily due to a low supply of the US dollar. In the parallel market, the demand remained high, pushing the Naira further into historic all-time lows.

By the end of the week, the Naira weakened by 11.43 percent week-on-week to a historic low of 1,170/$1, largely attributed to speculative activities, resulting in a market premium of

N361.73.

At the FMDQ Securities Exchange (SE) FX Futures Contract Market, the US dollar gained strength across various contract tenures against the Naira, appreciating by 2.10 percent, 2.15 percent, 2.03 percent, 1.76 percent, and 2.22 percent at the 1-month, 2-month, 3-month, 6-month, and 12-month forward contracts, closing at N805.92/$1, N816.47/$1, N824.20/$1, N852.67/$1, and N919.65/$1, respectively

Meanwhile, crude oil prices hovered around $90 per barrel, with the potential for further gains after

a week of relative stability at around $89 per barrel for Brent crude. Notable developments included the US-Venezuela deal, allowing US oil companies to resume operations in Venezuela, which could impact global oil production. Additionally, OPEC’s silence on calls for a Russian oil embargo amid rising tensions in the Middle East raised concerns of increased production, which might exert downward pressure on oil prices. Nigerian Bonny Light crude oil, however, saw a weekly gain, closing at

$98.26 per barrel, up from $95.59 per barrel, indicating a 2.79 percent gain for Nigeria in the oil market.

“Looking ahead, the Naira is expected to face continued pressure in the foreign exchange market due to the prevailing market conditions and volatility. Despite recent policy reversals aimed at enhancing liquidity, the Central Bank’s capacity to defend

the Naira against the US dollar appears limited. Speculative activities are on the rise, further boosting demand for the US dollar,” the analyst.