Nigeria’s currency, the naira, experienced a slight dip in value on Monday within the official market. The exchange rate concluded trading at ₦1,451.86 to the US dollar, a marginal decrease from the ₦1,450.43 to the dollar recorded at the close of trading on Friday.
Data sourced from the Nigerian Foreign Exchange Market (NFEM) daily exchange summary, accessible on the Central Bank of Nigeria’s website, revealed that the naira’s intraday trading saw a high of ₦1,457 per dollar and a low of ₦1,450.25 per dollar during Monday’s trading activities.
This minor depreciation aligns with a pattern of cautious trading observed in the market. The demand for foreign exchange is gradually increasing as the year approaches its end. Market participants have indicated that liquidity levels are currently stable but remain vulnerable to fluctuations in the supply of dollars.
Analysts suggest that the naira’s movement within a limited range indicates the market is gradually adapting to seasonal pressures. Market participants are also awaiting additional policy guidance from monetary authorities.
In contrast, the parallel market saw the naira’s value remain unchanged at ₦1,463 per dollar, according to Cowry Asset Management. The firm emphasized that this stability reflects the differing dynamics between the regulated official market and the informal foreign exchange market.
Last week, the naira’s value decreased by ₦3.69 against the dollar. This depreciation was driven by demand exceeding available supply. Despite inflows from Foreign Portfolio Investors (FPIs) and interventions by the Central Bank of Nigeria (CBN), these measures were insufficient to alleviate the upward pressure on demand. Overall, the naira’s value decreased by 0.25% week-on-week.
The moderate pressure on the naira is a continuation from November, during which the domestic currency was affected by geopolitical tensions. AIICO Capital, in its monthly report for November, stated that geopolitical tensions and dollar pressure had interrupted the naira’s steady appreciation.
AIICO Capital’s report further elaborated on the currency’s performance in November:
November Depreciation: The naira experienced a modest depreciation against the US dollar throughout November. The NFEM rate declined by 1.76%, moving from ₦1,421.73 per dollar to close at ₦1,446.74 per dollar. Simultaneously, the parallel market rate dropped by 1.03%, shifting from ₦1,455.00 per dollar to close at ₦1,470.00 per dollar.
Mid-Month Volatility: Volatility peaked in the middle of the month due to high dollar demand.
Impact of Geopolitical Events: Factors contributing to this volatility included geopolitical tension.
Investor Sentiment and Demand: Mid-month, investor demand for US dollars exceeded the available supply, even with CBN reforms and S&P’s positive outlook revision. This trend continued until the end of the month, halting the previous three months of appreciation.
External Reserves: Despite the challenges faced by the naira, external reserves increased by $1.5 billion month-on-month, reaching $44.67 billion. This increase was attributed to active reserve management and sustained inflows, which provided a stronger buffer for market stability.
