Naira jumps to N1,339.33 on official market despite dollar supply shortage

The naira, on Monday appreciated significantly on the official foreign exchange (FX) market despite a decline in the dollar supplied by market players.

After trading on Monday, the naira gained 10.71 percent of its value as the dollar was quoted at N1,339.33, stronger than N1,482.81 quoted on Friday at the Nigerian Autonomous Foreign Exchange Market (NAFEM), according to the data by the FMDQ Securities Exchange Limited.

Dollar supplied by willing buyers and willing sellers declined by 67.49 percent to $180.80 million on Monday from $556.25 million recorded on Friday.

Read also: Naira opens at N1,520 on black market

The naira appreciation was attributed to regulatory measures by the Central Bank of Nigeria (CBN). These measures discourage banks from holding excessive foreign currency positions, thereby increasing the availability of dollars in the market.

According to the FX trading market summary released on Monday by the FMDQ, the intraday high closed at N1,501 per dollar, stronger than N1,519/1 closed on Friday. The intraday low strengthened to N1,310 per dollar on Monday as against N1,400 on Friday.

The local currency on Monday weakened against the dollar on the parallel market, also known as black market, exchanging at the rate of N1,520. This represents 1.32 percent depreciation over the level of N1,500 exchanged on Friday on the parallel market.

Read also: Naira closes flat as dollar supply surges two-months high of $556.25m

The Nigerian Naira showed a positive trend in the foreign exchange market last week, as the exchange rate at the NAFEM window appreciated by 0.98 percent against the US Dollar, closing at N1,482.81/US$1. In contrast, the parallel market rate remained steady at N1,510.00/US$1. This divergence has widened the gap between the official and parallel market rates to 1.83 percent, according to a report by Coronation Research.

The CBN also reported an uptick in the country’s foreign exchange reserves, which rose by 0.22 percent to reach US$32.74 billion. Additionally, foreign exchange inflows saw a remarkable increase of 136 percent in the first quarter of 2024 compared to the same period last year, achieving a five-year high in March.

“The alignment of the NAFEM and parallel market rates since February has bolstered market confidence, reflected in the rising trading volumes within the NAFEM market earlier this year. However, a decline in turnover was observed around mid-April, leading to a subsequent weakening of the Naira.

“Market liquidity factors are crucial in understanding these dynamics, particularly the role of non-deliverable forwards (NDFs). An exceptionally large NDF redemption, valued at US$1.3 billion, is due this week. While the CBN is not expected to pay the full-face value in Naira, it will settle the difference based on the current spot rate. This settlement could influence market liquidity depending on the strike prices of the contracts.

“In a strategic move to manage US Dollar demand, the CBN appears to be encouraging foreign portfolio investors to reinvest their Naira proceeds rather than purchasing US Dollars in the NAFEM market. This initiative follows last week’s Open Market Operations (OMO) auctions, suggesting potential significant demand for US Dollars and active CBN participation in the forex market this week,” analysts at Coronation Research said.