Naira Face Fierce Dollar Amid Improved FX Liquidity
Naira’s Struggle Persists Despite Increased Liquidity: Market Insights.
The Nigerian naira is grappling with challenges as it hovers near its all-time low, despite a boost in liquidity from a $2.2 billion facility provided by the African Import Export Bank (AFREXIMBANK). The market fundamentals reveal that the naira is under pressure due to heightened demand for the dollar, even after interventions by the Central Bank of Nigeria (CBN) aimed at stabilizing the foreign exchange market.
Recent statistics from the Financial Markets Dealers’ Quotations (FMDQ) show that the dollar, though quoted at N1,435.53 (higher than Thursday’s N1,461.90) at the Nigerian Autonomous Foreign Exchange Market (NAFEM), is still trading close to its historical low. Despite these efforts, concerns linger about the potential impact on the overall economy.
While the daily turnover of foreign exchange in Nigeria’s official market increased from $156.86 million on Thursday to $440.13 million on Friday, the declining trend of the naira persists. The U.S. dollar index also surged to a seven-week high, fueled by data indicating stronger-than-expected job additions in January, reducing the likelihood of imminent Federal Reserve interest rate cuts.
Aminu Gwadabe, President of the Association of Bureau De Change Operators of Nigeria (ABCON), welcomed the $2.2 billion Afrexim Bank crude prepayment facility but expressed skepticism about its ability to fully stimulate the market. Gwadabe noted that the current daily demand in the Investors and Exporters (I&E) window alone ranges from $150 million to $250 million, suggesting that the $2.2 billion may be depleted in a mere ten days.
In response to concerns about escalating foreign exchange exposures, the CBN removed the ceiling on the allowed amount for International Money Transfer Operators (IMTOs), providing them with greater flexibility in currency conversion. This decision followed restrictions on banks’ foreign exchange holdings.
Despite Federal Reserve Chair Jerome Powell’s statement that a rate decrease in March is unlikely, the dollar has shown signs of weakness amid declining Treasury yields. The recent fluctuations in the haven currency and Treasury yields further complicate the fate of the naira, especially after a strong January for the greenback and higher Treasury yields over the month.
Recent data from the CME Group’s FedWatch Tool indicate a shift in market sentiment, with traders now pricing in a 21% chance of a rate cut in March (down from 38% on Thursday) and a 75% probability for May (down from 94%)