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FX market ends week with naira losing 0.63% to dollar

Domestic investors strengthen control of Nigeria’s equities trading

The foreign exchange market ended the trading week with Nigeria’s currency depreciating by 0.63 percent to N480 compared to N477 at the start of the week.

The weakness in the value of the naira against the dollar was due to strong demand and shortage of the greenback despite improvement in the price of oil, Nigeria’s major source of foreign exchange earnings.

The price of Brent crude, which had remained at about $40 per barrel late last year, rose to $55.95 per barrel as at 1.32 pm on Friday, January 29, 2021.

The foreign exchange market has been under pressure since March 2020 following a sharp drop in oil prices as a result of the Covid-19 pandemic.

At the Bureau De Change (BDC) segment of the foreign exchange market, naira weakened by 0.42 percent at the end of the week as the dollar was sold at N477 compared to N475 since January 15, 2021.

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Within the week, over 5,000 BDC operators received dollar disbursement worth $100 million from the Central Bank of Nigeria (CBN).

The apex bank sells $10,000 twice weekly to the BDC segment of the foreign exchange market. The regulator has sold over $1 billion to BDCs since September 7, 2020, when it resumed dollar sales to them.

At the Investors and Exporters (I&E) forex window, naira/dollar exchange rate closed the week at N394.13k, representing 0.09 percent gain when compared with N394.50k per dollar quoted at the beginning of the week.

Foreign exchange turnover eased by 14.7 percent Week-on-Week in the I&E to a weekly average of USD216.8m as against USD306.9m in the prior week.

Nigeria’s external reserves have risen to $36.23 billion as at 21st January 2021 compared with $34.94 billion at the end of November 2020.

The CBN on Tuesday retained its Monetary Policy Rate (MPR) at 11.5 percent amid a difficult recession – citing a more pressing concern of inflation.

In the last trading week of January, bearish sentiment dominated the fixed income space stoking a rise in the average yield across markets to 4.0% WoW from 2.8%, according to Greenwich Merchant Bank research.

In particular, the NT-bill space opened the week bearish even though most trades settled flat as investors awaited the outcome of the first MPC meeting of the year on Tuesday and an NT-bill Primary Market Auction (PMA) on Wednesday.

At the PMA, investors demanded higher yields to hold government security which settled stop rates across the 91-Day at 0.55% from 0.50%, 182-Day at 1.30% from 1.00% and 364-Day at 2.00% from 1.50%. Following the auction, investors quickly sold-off their holdings causing yields in the secondary market to hit a 3-month high of 1.1%.

However, the selloffs opened opportunities for investors to position in tickers at the belly of the curve, thus, moderating yields slightly on Friday. Overall, the average NT-bills yield rose from 0.5% to 1.1% WoW.

The Open Market Operation (OMO) market followed a similar trajectory as the bears were unrelenting save for Thursday as the CBN rolled over about 97.0% of maturing bills worth NGN150.0bn via OMO sales. Consequently, the average yield in the OMO-bill market spiked by 74bps to 1.7% from 0.9% WoW.

At the start of the week, analysts at Greenwich research estimated a net inflow of NGN239.8bn from FGN Bond coupon payment and maturing an OMO bill. However, funding rates firmed up by 50bps WoW for the Open Buy Back (10.5%) and Over Night rate (11.0%) suggesting a tighter liquidity environment.

The bears held sway in the Bond market as they sold off instruments across the tickers. Notably yields expanded across the long (+131bps), Short (+100bps) and intermediate (+61bps) segments. Consequently, the average bond yield pointed higher by 97bps to settle at 8.1% from 7.1% on a WoW basis.