In a surprising turn of events, the Nigerian foreign exchange (FX) market concluded the week with the Naira exhibiting remarkable strength against the US Dollar in all market segments.
Day-to-day trading witnessed an impressive Naira appreciation of 5.68 percent, as the Dollar’s exchange rate dropped from N837.49 on Thursday to N789.94 on Friday, according to data from the Nigerian Autonomous Foreign Exchange Market (NAFEM) as reported by FMDQ.
The FX market experienced a substantial influx of Dollars from both eager buyers and sellers, leading to a remarkable increase in daily foreign exchange market turnover. This figure surged by a staggering 129.50 percent, reaching $259.84 million on Friday compared to the previous day’s $113.22 million.
For the entire week, the flow of Dollars also saw an extraordinary increase, climbing from $81.55 million on Monday, October 23, 2023, to $259.84 million on Friday, representing an astounding growth of 218.62 percent.
As a result of these developments, the Naira experienced a robust 8.39 percent gain against the Dollar, with the exchange rate falling to N1,200 on Friday, compared to N1,310 per Dollar on Thursday in the informal or black market.
On a week-to-date basis, the Naira appreciated by 0.83 percent, closing the trading week at N1,200 per Dollar, in contrast to the week’s opening rate of N1,210 per Dollar.
From a low of N310 per Dollar earlier in the week, the Naira’s strength became evident as it reached N200 per Dollar on Friday in the black market.
Despite the Naira’s resurgence, Nigeria’s foreign exchange reserves have been steadily declining, down by $3.8 billion or approximately 10.2 percent in recent months, reaching $33.31 billion, according to a report by Cowry Asset Management Limited. This marks the lowest level since July 2021 when the reserves stood at $33.09 billion.
The country’s inability to capitalize on the windfall generated by the global oil market due to geopolitical unrest in Eastern Europe since February 2022 has taken a toll on the economy. Furthermore, the lack of Dollar liquidity within the central bank’s vault has led to the apex bank relying on its reserves to defend the Naira in the foreign exchange market.
As a result, analysts at Cowry Asset believe that the continuous decline in gross official reserves, combined with FX liquidity constraints, has weakened investor confidence and diminished the offshore community’s appetite for Nigerian investments.
