BY BAMIDELE FAMOOFO
The Naira skid across foreign exchange segments against the dollar as demand pressure resurfaced amidst lower foreign exchange supply to meet the endless demand across the official and parallel markets.
This comes even as speculative activities take centre stage as the apex bank continues to show weak firepower to defend the local currency while market players anticipate the inflow of foreign exchange from the $3 billion emergency crude-oil fund from the NNPC Limited.
At the close of transactions last week, the naira depreciated by 5.26 percent and 7.65 percent against the US dollar respectively, with official and parallel market rates closing at N778.42 and N915/$1 respectively.
According to Johnson Chukwu, Group Managing Director, Cowry Assets Management Limited, the upturn was driven by factors such as limited foreign exchange supply from the CBN via the Investors and Exporters (I&E) window, heightened demand for the dollar which saw limited supply at the official market, leading to increased pressure at the parallel market and speculation about potential CBN-led Naira devaluation.
Elsewhere at the FMDQ Securities Exchange FX Futures Contract Market, the local currency was downbeat against the US dollar across contract tenors.
This week, Cowry Research anticipates the naira to trade in a relatively calm band at the various FX markets barring any distortions while the apex bank maintains its interventions to shore up the naira value
Notably, forward rates depreciated marginally by 0.94 percent, 0.86 percent, 0.85 percent, 0.76 percent and 0.84 percent respectively for the SEPT-2023, OCT-2023, NOV-2023 FEB-2024 and the AUG-2024 contract tenors, reaching to close at N790.80/$1, N800.21/$1, N809.63/$1, N838.09/$1 and N897.57/$1 as a result of sustained demand pressures across various tenors.
During the review week, oil price dynamics took the centre stage and was headed for a weekly loss on the back of new oil flows entering the market, but bullish fundamentals came to rescue, helping to stop any significant drop.
To this, the Brent Crude was up $84.40 per barrel on Friday and was followed by the WTI which traded at the $80 band per barrel.
Elsewhere, the price of the Nigerian Bonny Light crude oil closed positive on Friday at $88 per barrel on the back of tight global supply concerns and the Fed rate hikes expectation.
This week, Cowry Research anticipates the naira to trade in a relatively calm band at the various FX markets barring any distortions while the apex bank maintains its interventions to shore up the naira value. However, as the market awaits the staggered inflow of FX from the $3billion emergency crude-oil repayment loan from the Afreximbank into the market, experts anticipate that demand pressure will persist across FX segments and cause further depreciation of the naira against the greenback.
The naira, which had initially appreciated to N870/$ on August 21, 2023, from N950/$ on August 15, 2023, following the $3 billion Afrexim loan secured by NNPC, saw a reversal.
This rebound was prompted by perceptions of increased FX supply and CBN’s measures against speculators.
However, a subsequent disclosure by JP Morgan regarding the country’s net reserve position on August 22, 2023, led to concerns about FX shortage severity and CBN’s intervention capacity.
As a result, the naira has depreciated to N915/$ by August 25, 2023, and is currently trading above N920/$ intra-day.
Analysts predict a sustained depreciation due to factors like the 41-item ban, speculations, and higher PTA requirements.
