• Wednesday, April 24, 2024
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FX turnover rises by 0.72% driven by increase in derivatives

Nigeria’s-FX-market

Total foreign exchange turnover in the Spot, Forwards and Futures markets, for the week-ended May 28, 2021, declined by 0.72 percent ($8.97m) to $1,250.97 million, from $1,242.00 million reported for the week-ended May 21, 2021.

The week-on-week (WoW) increase in turnover was driven by the 57.35% ($128.13m) increase in FX derivatives turnover.

A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset such as a security or set of assets like an index. These include bonds, commodities, currencies, interest rates, market indexes, and stocks.

Data from the FMDQ showed WoW increase in FX derivatives turnover was driven by the increase of 299.81% ($142.74m) in FX Futures turnover, resulting in an increase in FX derivatives’ contribution to total FX market turnover by 14.22 percentage points to 28.10% from 13.88% recorded in the previous week.

In the Investors’ & Exporters’ (I&E) FX window, the total value of trades for the week-ended May 28, 2021, was $899.42 million, representing a decrease of 11.70% ($119.17m) from $1,018.59 million traded in the week-ended May 21, 2021

For the week-ended May 28, 2021, the weekly average Nigerian Autonomous Foreign Exchange Fixing (NAFEX) rate depreciated, losing $/N0.07 to close at $/N410.91 when compared to $/N410.84 recorded in the previous week-ended May 21, 2021

In the Bureau-de-Change (BDC) market, the naira fell against the dollar by $/N7.00 to close the week-ended May 28, 2021, at $/N490, representing a 1.45% depreciation when compared to $/N483.00 recorded in the previous week, resulting in a spread of $/N79.09 between the BDC rate and the weekly average NAFEX rate

In the FX Futures market, $190.35 million worth of FX Futures contracts were traded in 22 deals, representing a WoW increase of 299.81% ($142.74m) when compared to $47.61 million traded in five deals recorded in the week-ended May 21, 2021.

The foreign exchange trading week, which ended on Friday, saw Nigeria’s currency weakened by 1.85 percent as the dollar was sold for N495 compared to the opening rate of N486 per dollar on the black market.

Against the previous week closing rate, naira depreciated by 1.29 percentage point from 0.56 percent on May 21, 2021, at the same market.

The depreciation of the naira on the parallel market followed the adoption of the Nigerian Autonomous Foreign Exchange (NAFEX) of N410.25k as official exchange rate by the Central Bank of Nigeria (CBN).

This was in response to the pressure from the International Monetary Fund (IMF) and the World Bank, which demanded a unification of exchange rate as a precondition for approval of $3.4 billion and $1.5 billion, respectively, loan request by the Nigerian government.

Consequently, speculators took advantage of the central bank’s newly adopted exchange rate to buy up and hoard dollars.

Naira steadied at N486 per dollar on Tuesday and fell to N490 per dollar during the intraday trading on Wednesday. It further depreciated to N493 after trading on the same day.

The foreign exchange pressure continued on Thursday as Nigeria’s currency weakened further to N495 on the black market due to speculative activities of the operators.

With the closing rate on Thursday and Friday, naira was 0.40 percent lower than N493 per dollar closed on the previous day on the parallel market.