The entire turnover of the Foreign Exchange (FX) Spot and Derivatives markets on the FMDQ Securities Exchange was $472.49 million last week.
The amount, which is a decrease of 26.52 percent ($170.57 million) from the $643.06 million reported the week before, shows how illiquid the market is becoming.
The naira is still under a lot of pressure in the parallel and peer-to-peer markets, where it was trading over N1000 versus the dollar over the weekend. The Central Bank of Nigeria (CBN)’s new leadership team’s confirmation and full restart, according to experts, may lead to new efforts to foster the confidence needed to curb speculative trading in the days ahead.
The market is anticipated to reopen tomorrow at the new rates, having been cooling off over the past week to little above N1000/$. Additionally, last week at the Investors and Exporters Window (IEW), the value of the naira fell by 1% to N755.27/dollar, and the overall turnover at the window decreased by 46.4% to $344.67 million. Trades were closed in the NGN851/$ – N590 range.
Relative to the dollar, the naira also saw depreciation in the futures market on contracts for one month (-1.2 percent to N791.13/dollar), three months (-1% to N803.09/dollar), six months (-0.7 percent to N820.86/dollar), and one year (-1% to N876.74/dollar).
Following a pause in FX reforms, analysts at Cordros Securities claim that the narratives in the FX market have stayed consistent in recent weeks.
“Hence, barring any significant positive developments, we expect the lingering low crude oil production and a sustained dip in foreign investors’ net flows to weigh on FX supply in the short term.”
“Consequently, we expect FX liquidity constraints to linger in the near term, ensuring the local currency pressures remain intact,” it added.
Nigeria’s foreign reserves dropped to $33.24 billion last week, the lowest since July 2021, a week-over-week (w/w) loss of $34.25 million that raised concerns about the state of the market.
The FMDQ reports that the decline in FX Spot and FX Derivatives turnover, which were down 26.38% ($167.56 million) and 37.06% ($3.01 million) respectively, were the main contributors to the overall turnover’s week-over-week (w/w) decline.
According to the exchange, the drop in FX Forwards turnover of 37.96% ($3.01 million) was the only factor contributing to the week-over-week fall in FX derivatives turnover. The Naira-Settled OTC FX Futures and Exchange-Traded FX Futures markets saw no activity.
Compared to the value of transactions executed the previous week ($635.13 million), which was 26.38 percent ($167.56 million) lower, the total value of transactions in the FX Spot market for the week ending on September 29 was $467.57 million.
It further stated that for the week ending on September 29, there were no trades made in the Exchange-Traded FX Futures or the existing Naira-Settled OTC FX Futures markets.
The average Nigerian Autonomous Foreign Exchange (NAFEX) rate for the week ending September 29 was $/₦774.01, down from $/₦771.14 the week before. As a result, the naira’s value decrease relative to the dollar is now 0.33 percent ($/₦2.54).
The week began with rather calm activity in the bond secondary market, but by the conclusion of the week, sentiment turned bullish as the average yield decreased by three basis points (bps) week over week.
In response to buying activity in the MAR-2024 (-86bps) and APR-2037 (-9bps) bonds, respectively, the average yield contracted at the short (-19bps) and long (-2bps) ends across the benchmark curve.
The average yield in the mid (+7bps) class increased as market participants profited from the APR-2032 (+8bps) bond, Cordros Securities analysts stated: “Over the medium term, we expect yields in the FG bond secondary market to remain elevated, driven by the sustained imbalance in the demand and supply curve. However, we highlight that deliberate actions by the DMO to keep borrowing costs moderate remain a downside factor.”
