Naira Hits Old Red Line as FX Crisis Gets Messy
The naira has hit the old red line of N1,490 per US dollar. Pressure on the Nigerian naira deepened across forex market on Monday as exchange rates hit new red lines it has crossed in the past. FX supply in the market was below the amount of US dollar logged today by market participants.
Nigeria faces persisted US dollar shortage as hydrocarbon sale which account for about 90% export receipt has been swapped in quick loan deals.
Despite growing naira bulls’ estimates, the local currency has suffered more than initially projected by Goldman Sachs, Financial Derivative Company, Renaissance Capital following the apex bank’s claim that the local currency is grossly undervalued.
At the global level, analysts at Goldman Sachs and Fitch Ratings differ on the naira amount required to obtain US dollar under their 12-month estimates.
Goldman Sachs last predicted that exchange rate would recalibrate to N1000 per US dollar while Fitch Ratings expects rate to close the year at N1,450 per greenback.
In April, the naira won a trophy as best performer across the world. The period was greeted by strong FX inflows from foreign portfolio investors and the Central Bank of Nigeria (CBN) subsided US dollar sales to Bureaux de change operators.
The naira has not survived US dollar dominance in the forex market since the apex bank halted FX sales in the informal currency market while maintaining willing buyer, willing sellers model at the official window.
FX liquidity challenge has been major issue facing the exchange rates at the informal and formal currency market. Based on historical pattern, exchange rates improved along with CBN market intervention.
However, the apex bank adopted willing buyer, willing seller FX model to allow free trade with intervention of the regulator.
Data from the FMDQ Securities Exchange, where daily FX spot rate is quoted, showed that the naira depreciated by 0.31% to N1,490.20 US dollar at the Nigerian Autonomous Foreign Exchange Market.
At the parallel market, the exchange rate weakened slightly to N1,475 per US dollar as invisible demand continue to climbed. Last week, the local currency depreciated by ₦2.81 or 0.19% week on week to close at N1,485.53 compared to ₦1,482.72 recorded at the close of last week.
In May, US dollar demand was high in the FX markets despite increased inflows from offshore players and frequent interventions by the CBN. The interventions included three OMO auctions with a total allotment of approximately ₦1.92 trillion, AIICO Capital said in a report.
The average turnover in May was $279.67 million, showing a 2.67% increase compared to April.
Today, oil prices continue its upward trend as traders consider potential rise in demand, offsetting the strengthening of the Dollar as well as increased geopolitical tensions in the Middle East. #Naira Hits Old Red Line as FX Crisis Gets Messy
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