Naira Sinks after Reduced Arbitrage, Speculation in FX Markets Claim

The Nigerian naira sank to the bottom of the forex market curve, depreciated by about 2.5% against the US dollar following intermittent FX market invention sales to boost liquidity.

In the foreign exchange market, FX liquidity challenge persisted, causing the naira to losing weight against the US dollar across the informal, and official currency markets.

The apex bank monetary policy committee has indicated that narrowing spread between the various foreign exchange segments of the market, is an indication of price discovery and improved market efficiency, thus reducing opportunities for arbitrage and speculation

Data from the FMDQ platform revealed that the naira depreciated against the US dollar by 2.45% to ₦1,586.71 versus N1,591 per greenback on Friday. The CBN resumed FX sales to authorised dealers, but the impacts on the exchange rate didn’t last longer than a day at informal and official markets.

In the parallel market, the naira also depreciated by 1.94%, ending the day at an average of N1,575 per US dollar, according to a channel check.

The Apex bank is keeping FX traders guessing about its position about exchange rate movement. Yemi Cardoso, the Governor of the CBN, told investors at a conference that the naira was grossly undervalued.

The statement triggered fair value predictions across Broadstreet, while Goldman Sachs stepped into the ring with a rather optimistic exchange rate of N1000 per US dollar projection. Fitch Ratings reset the record as the global rating agency predicted that the naira-to-US dollar exchange rate would end at N1,450 in 2024.

Other naira bulls have also supported the apex bank’s claim that the local currency is overvalued. At the end of the monetary policy committee meeting on Tuesday, the authority noted the narrowing spread between the various FX segments of the market, calling it an indication of price discovery and improved market efficiency.

The apex bank accepted that the narrow FX gap between spot rates has reduced opportunities for arbitrage and speculation. The monetary authority believed that the increase in the level of external reserves would further build confidence for a more stable exchange rate and thus urged the Bank to explore available avenues to improve inflows, especially through diaspora remittances.

It appears that the CBN has accepted an exchange rate band of N1500 to N1600 as an acceptable level by praising near exchange rate unification within the band at its committee meeting. MarketForces Africa reported that price discovery is a process that determines market prices, mostly through interactions between buyers and sellers.

FX market data showed that the naira has been weakening since the beginning of the year while the Nigeria’s foreign reserves continue uptrend due to revenue inflows from NNPCL trades collected by the apex bank.

The World Bank loans and African Import-Export Bank oil-backed loan tranches have also boosted the external reserves to 17-month high. In the global commodity market, the price of crude oil rebounded today, ending a three-day decline. Brent prices rose by 1.07% to $81.88, while WTI prices increased by 1.16% to $77.85.

Furthermore, the price of gold went up by 0.65% to $2,422.60 per ounce. #Naira Sinks after Reduced Arbitrage, Speculation in FX Markets ClaimEurobonds Default: Fitch Affirms Ghana Credit Rating at ‘RD’The post Naira Sinks after Reduced Arbitrage, Speculation in FX Markets Claim appeared first on MarketForces Africa.