Naira records biggest depreciation across foreign exchange markets in 2023



Uba Group

The Naira recorded its worst depreciation in the foreign exchange market in 2023, in the face of pressure demand for the greenback across various FX segments in the week ended July 14.

The currency depreciated by N22.50 or 2.84 percent w/w to N814.7/$1 from N792.20/$1 at the parallel market as fx demand and supply mismatch continue to play as an underlying driver with more backlog of unmet fx demand by the CBN.

Also, at the investors’ and exporters’ FX window, the Naira lost strength against the United States’ dollar despite continued funds inflow into the financial system and coupled with the directives to banks to source fx themselves, by N27 or 7.72 percent w/w to close at N803.90/$1 from N776.90/$1 in the last week. This comes as traders continue to position themselves in a bid to ascertain the fair value of the naira.

Analysis of the activities of the Naira at the Forward Contracts Market in the review period showed that the local currency edged the United States’ dollar across all forward contracts by +2.07 percent, +2.41 percent, +1.64 percent, +3.37 percent and +4.78 percent w/w to close at N784.65/$1, N791.15/$1, N806.80/$1, N820.49/$1 and N866.75/$1 at the 1-month, 2-months, 3-months, 6-months and 12-months tenor contracts respectively.

Elsewhere, bullish sentiment was sustained in the oil market amid economic downturn, Arabia’s production cut, signs of lower Russian oil export and the lowering of oil demand forecast by the IEA. Thus, oil prices closed on a weekly high on Friday at $80.11 per barrel. Also, the Bonny Light crude price exhibited an upward trend by 3.96% or ($3.12) w/w, to close at $81.88 per barrel from $78.76 per barrel in the previous week.

As the foreign exchange market remains volatile, money market analysts anticipate the naira to depreciate further on demand concerns this week and barring any market distortions while the market adjusts itself in line with the prevailing forces of demand and supply.

“As the foreign exchange market remains volatile, money market analysts anticipate the naira to depreciate further on demand concerns this week”

In the money market, the CBN sold T-bills worth N141.77 billion to completely mop up matured Treasury bills. In line with the expectations of Cowry Assets, the 364-day bill was issued at a lower rate amid strong investor appetite.

Hence, the stop rate for 364-day bills moderated further to 5.94 percent (from 6.23%). Likewise, stop rates for 91-Day and 182- Day bills were lower at 2.86% (from 2.87%) and 3.50% (from 4.37%), respectively.

In the secondary market, investor sentiment was positive as yields went southwards for all maturities tracked. NITTY for 1 month, 3 months, 6 months, and 12 months maturities moderated to 2.14 percent (from 2.54%), 2.87 percent (from 3.37%), 3.86 percent (from 4.66%), and 6.27 percent (from 6.59%), respectively.

The pressure on the foreign exchange continued on Thursday as one dollar sold at an average rate of N811 at the parallel segment of the market.

This was 0.55 percent lost to the value of naira when compared to N806.50 per dollar quoted on Wednesday at the black market.

One of the traders said the demand for dollars was rising, coming from individuals who want to travel for the summer or other reasons.

On Wednesday, naira weakened at the parallel market, losing 0.80 percent of its value against the dollar on increased demand.

At the Investors’ and Exporters’ (I&E) forex window, naira appreciated by 0.75 percent as dollars was quoted at N782.49 on Wednesday as against N788.42 quoted on Tuesday at the market, data from the FMDQ showed.

Meanwhile, given the absence of any maturing and refinanced OMO bill by the apex bank, NIBOR fell for most tenor buckets tracked amid financial system liquidity ease. NIBOR for the 1 month, 3 month, and 6 months tenor buckets moderated to 4.86 percent (from 7.24%), 5.99 percent (from 8.65%), and 7.49 percent (from 9.41%), respectively. However, the Overnight rate rose to 1.97 percent (from 1.62%).