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The Nigerian naira has continued its downward trend against the US dollar, pressured by high demand and dwindling FX supply in the country’s autonomous foreign exchange market. The Central Bank of Nigeria (CBN) recently reduced its dollar supply to the official FX window, declining over 14% month-on-month, in the lead-up to its automated FX trading platform’s test run, scheduled for December 2024.
The CBN aims to boost market confidence and curtail speculative trading through this new e-FX platform. However, despite the introduction of several FX initiatives over the past year, naira depreciation persists, reflecting persistent liquidity shortages in the currency market. According to data from the FMDQ platform, the naira weakened by 0.61% in the official market, closing at ₦1,676.90 per US dollar.
Recent CBN activity saw the sale of $77 million to authorized dealer banks, which only marginally eased demand pressure. This intervention occurred despite rising external reserves, with the CBN’s contributions to FX inflows dropping by 14.4% in October. Meanwhile, in the parallel market, the naira closed at ₦1,725 to the dollar as demand pressures for invisible FX payments subsided slightly.
In the forwards market, short-term contracts continued to show signs of depreciation: the 1-month forward contract dropped by 1.2%, reaching ₦1,699.95 per dollar. However, the 3-month forward contract rose by 1.3% to ₦1,732.09, the 6-month forward gained 1.0% to ₦1,848.62, and the 1-year forward appreciated by 3.0% to ₦2,024.79.
Analysts predict continued pressure on the naira in the near term, citing sustained demand and limited CBN intervention capabilities, alongside suboptimal foreign portfolio investor inflows. Data from the FMDQ also revealed that total inflows into the Nigerian Autonomous FX Market reached a five-month high in October, with a 40.2% increase to $3.04 billion from $2.17 billion in September. However, local inflows fell by 7.5% month-on-month, driven by declines in collections and supply from individuals, which dropped 30.6%.
Further, the CBN’s supply of FX declined by 14.3%, alongside an 8.6% drop from non-bank corporate sources. These reductions may impact overall liquidity in the near term, potentially dampening market confidence and intensifying pressure on the naira.
In other markets, oil prices surged over 2% after OPEC+ delayed its planned production increase by a month. Brent crude rose to $74.86 per barrel, and WTI reached $71.28, spurred by upcoming U.S. elections and significant policy meetings in China. Gold prices also climbed amid investor caution around the U.S. election outcome and anticipated Federal Reserve policy announcements, trading at $2,742.10 per ounce.
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