Naira ends week strong despite 33.83% drop in dollar supply

Nigeria’s currency closed the five trading days strong in spite of the drop in dollar supply as the foreign exchange market turnover declined by 33.83 percent.

The Central Bank of Nigeria (CBN) injected $210 million within the week but this failed to shore up liquidity.

The daily foreign exchange market turnover declined to $116.55 million on Friday from $176.13 million recorded at the opening trading day on Monday, data compiled by BusinessDay from the FMDQ revealed.

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Naira closed stronger at the end of the week, gaining 0.27 percent against the dollar to close at N410.38k/$ on Friday compared to the opening rate of N411.50k per dollar on Monday at the Investors and Exporters (I&E) forex window.

On Monday naira recorded a marginal appreciation of 0.06 percent at the official market as liquidity rose significantly by 138.04 percent.

The dollar was quoted at N411.55k on Monday compared to N411.75k quoted on Friday at the I&E forex window, data from the FMDQ showed.

The naira/dollar exchange rate closed at N411.75k on Tuesday as against N411.50k closed on Monday at the official market.

At the foreign exchange market on Wednesday, Nigeria’s currency appreciated by 0.13 percent as the dollar was quoted at N411.22 against the last close of N411.75 on Tuesday.

On Thursday Naira closed flat against the dollar at all market segments of the foreign exchange market.
Naira/dollar exchange rate on Thursday steadied at N411.20k at the official market also known as the Nigerian Autonomous Foreign Exchange Fixing (NAFEX).

At the parallel market, Naira weakened by 0.19 percent (N1.00k) to end the week at N506 as against N505 per dollar traded since last week.

Naira/dollar exchange rate closed flat at N380.69/USD at the Interbank Foreign Exchange market amid weekly injections of USD210 million by CBN into the forex market.

A breakdown of the dollar disbursement showed that USD100 million was allocated to Wholesale Secondary Market Intervention Sales (SMIS), USD55 million was allocated to Small and Medium Scale Enterprises and USD55 million was sold for invisibles. Elsewhere, the Naira/USD exchange rate appreciated for most of the foreign exchange forward contracts: 1 month, 2 months and 3 months exchange rates fell by 0.05 percent, 0.12 percent and 0.13 percent to close at N413.32/USD, N415.04/USD and N417.10/USD respectively.

However, 6months and 12 months rates depreciated by 0.08 percent and 0.34 percent to N424.04/USD and N437.00/USD.

Meanwhile, the spot rate remained flat at N379.00/USD. “In the new week, we expect Naira to weaken against the greenback at most FX Windows as CBN’s capacity to defend the Naira weakens amid plunging external reserves,” analysts at Cowry Asset Management Limited said.

Nigeria’s external reserves rose marginally Week-on-Week by 0.01 percent to close at USD33.10 billion as of July 15, 2021.

Naira was devalued twice in 2020 and once in 2021, in response to Covid-19 impact on capital flows and the fragility of the external sector of the Nigerian economy. Also, there is a continuing struggle with diversifying foreign earnings, said Biodun Adedipe, chief consultant, B. Adedipe Associates Limited.

He said oil remains the prime mover, accounting for 91.65 percent of exports in the first half of 2019, 84.19 in the second half of the same year, 86.73 percent in the first half of 2020, and 88.7 percent in the first to the third quarter of 2020, as oil prices remained favourable and production/export steadied and weakened. This, he said portend high vulnerability.