Naira ends week with marginal loss across FX markets

The Foreign Exchange (FX) market ended the trading week on Friday with naira, Nigeria’s currency, recording marginal loss across market segments, due to gradual rise in demand for dollars.

At the Investors and Exporters (I&E) forex window, Naira/dollar exchange rate closed at N461.90/$1 on Friday, losing 0.05 percent (N0.23) Week-on-Week from N461.67/$1 closed last week Friday, January 6, 2023.

Naira also depreciated at the parallel market, popularly called the black market, losing 0.40 percent (N3) Week-on-Week to close at N745$1 on Friday as against N742 per dollar last week Friday.

The foreign exchange market daily turnover declined by 18.85 percent to $72.18 million on Friday from $88.95 million recorded on Thursday, data from the FMDQ indicated.

Meanwhile, Nigeria’s external reserves recorded a marginal growth of 0.3 percent ($96.0m) to $37.2 billion, according to a report by Afrinvest Securities Limited.

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At the FMDQ Securities Exchange (SE) FX contract Mlmarket, the total value of open contracts of the naira settled at $4.32bn, up 0.2 percent from the prior week. The September 2023 instrument (contract price: N487.33) received the most buying interest with additional subscription of $10.0m which took total value to $345.5m.

“In the coming week, we expect rates to trade within a tight band across the different FX segments of the market,” analysts at Afrinvest said.

According to the world bank, the official exchange rate depreciated by 5.2 percent in 2022, as at November; while the parallel market rate depreciated by 40 percent. Parallel market premium widened from 37 percent in January to 71 percent in November 2022.

The Bank said that “Nigeria exchange rate policy settings are stifling business activities, investment and growth, and amplifying macroeconomic risks.”

At the money market, despite primary market repayment worth N56.9bn during the week, system liquidity moderated by 69.0 percent w/w to N417.2bn.

Consequently, Open Repo (OPR) and Over Night (OVN) rates closed the week lower by 3.3 percentage points (ppts) and 4.5ppts w/w to 9.7 percent and 10.0 Percent respectively, the Afrinvest report stated.

An open repo is referred to as a repurchase transaction that is agreed without fixing the maturity date.

The overnight rate, according to Investopedia, is the interest rate at which a depository institution can lend or borrow funds that are required to meet overnight balances.

Meanwhile, at the primary market auction on Wednesday, the CBN rolled over maturing T-bills notes worth N56.9bn, with offers of N1.5bn, N1.5bn, and N53.9bn on the 91, 182, and 364-day tenors respectively.

According to the report, at the end of the second trading week in the new year, the domestic bond market closed in the bearish region, as tight system liquidity (down 69.0% w/w) prompted sell-off in the secondary market.

Specifically, the average yield in the secondary market rose 10bps w/w to 12.7 percent as investors continue to trade cautiously amidst changing macroeconomic dynamics.

Noteworthy, the bearish mood was mostly felt at the long end of the curve where average yield nudged up 24bps w/w, while the average yield at the belly and short end of the curve was largely unchanged.