Naira expected to be under pressure until backlogs for FX payments are cleared
- 22nd June 2020
- Posted by: Hakeem
- Categories: FOREX LATEST NEWS DAILY, International
Nigerian local currency breached its support levels broadly except for the short-term forward contract where it showed significant appreciation last week. The naira’s depreciation was triggered mainly by Nigerian central bank reserve drawdown as the foreign exchange outflows outpaced inflows.
The foreign reserves stood at $36.33 billion droppings by $119.25 million, week on week.
At the I&E window, the naira fell against the American dollar to NGN387.75 to $1 during the week, and also at the black market, the naira sold for N455.00 to $1, breaching its previous support levels when it earlier sold at N450 to $1.
However, at the forwards market, Nigerian local currency appreciated against the US dollar in the 3-month forward contract it gained +0.03% to close at N391.20 to $1 and 6-month forward contract gained +0.05% to close at N396.70 to $1 contracts.
A foreign exchange dealer at a Nigerian tier-1 bank explained to Nairametrics that the naira might continue to be under pressure until Nigeria’s Central bank cleared the backlogs for foreign exchange payments. He said;
“The CBN will sustain its interventions in various windows with the injection of $80-100million to Invisibles and Small and Medium-scale Enterprises (SMEs) segment at $/₦384.50 and possible Wholesale Secondary Market Intervention Sales (SMIS) at $/₦386.50. Also, the CBN will inject c.$280million through the Retail SMIS on Friday.
“The dearth of funds witnessed since the start of the month will persevere in the Investors’ and Exporters’ FX window given the plummeting real return (currently negative) and unattractive hedge through FX Futures contracts.
“Until the CBN clears the backlogs of FX demands for offshores investors by selling to them in an orderly manner as promised, the illiquidity will persist. Nevertheless, I expect Naira to trade at sub $/₦395 levels throughout the week.”
Silas Ozoya, managing partner at SUBA Capital explained to Nairametrics the challenges business owners are facing, in meeting their foreign exchange obligations. He said;
“The continuous devaluation of the Naira is making it difficult for growing business owners like me to measure growth accurately and that poses a challenge to either raise funds or expand business operations.
“We’ve been between N387.41/$1 on Monday the 15th June 2020 to N387.50/$1 by Saturday 20th June 2020.
“This kind of movement makes you wonder what might happen next when the markets open on Monday… and that kind of uncertainty makes it difficult to plan financially.
“So I look forward to a positive movement of the Naira against the dollar assuming these proposed policies of cutting recurrent spending happen.”
Victor Silas an Investment Analyst at a leading Nigerian financial institution explained to Nairametrics via phone chat that the recent drawdowns in Nigeria’s foreign exchange increases the odd against the naira. He stated that;
“With the drawdown in the FX reserves, the odds are against the naira. As the economy reopens and the resumption of dollars sells to BDCs and attempts to meet piling FX demands we might start to see pressures on the currency.
“But for the coming week, I do not see any fundamental shift in current rates with expectations it will be relatively stable.
“The I & E window will be relatively stable around N387/$ levels. While the parallel market at N450/$ levels.”