A few days into the year, following a protracted period of steady decline in the unofficial market that saw the start of the year, Naira might be facing its first significant test.
The local currency is plumbing new lows at the pseudo-pro-market Nigerian Autonomous Foreign Exchange Market (NAFEM), shattering the psychological barrier of N1,000/$ following two attempts prior to the holiday break.
The local currency maintained steady on the first and second days of the year, with a parallel market rate of about N1180 per dollar. However, over the last two days, our journalists have tracked several black-market hotspots in Lagos and Abuja where the value of the currency has dropped below N1200/$.
As of yesterday, street trade was still characterised by restricted liquidity, with dealers offering as much as N1250 for a dollar. As trading conditions tighten, speculative buying—a primary force behind black-market currency trading—appears to be taking a break. A few dealers clarified that they were not handed to mop-up because the dealers were “still extremely cautious.”
“It’s still very early in the year. In order to predict the future direction of rates, dealers continue to monitor the market. Yaikasa Bello, a dealer at the Murtala Muhammed International Airport, clarified, “You may buy large quantities at high rates but unable to sell at the rate you buy.”
Remember that there is a lot of unpredictability even with reform. A single announcement might result in a 20% change in the going rates in a single day when the market is in such condition.”
“You will lose $200,000 if you own even $1,000,000 and lose 20% of it in a single transaction. How can you get over a loss like this?” the insider enquired.Â
Dealers are hardly the first to move to on-demand trading. When news broke last year that the Central Bank of Nigeria (CBN) was starting to reduce the backlog of unpaid foreign exchange (FX), hard currency witnessed a nearly 10% value loss versus the naira in a matter of hours, causing hundreds of merchants to leak their wounds.
Instead of engaging in speculative trading, nearly all of the traders were merely purchasing to satisfy client demand, and many of them began to dump their hoardings.
It was discovered that the price-fixers, who primarily operate out of Abuja and Lagos, had not been communicating with the market clearly as a result of the increasing uncertainty leading into the new year, leaving their “foot soldiers” to speculate as to the direction of the market.
It’s possible that the absence of clarity during the previous two weeks was mistaken for stability in the illegal market. However, the last two days have seen a strain on stability as the naira appears to have faltered, dropping below the N1200/$ level at which it was trading on the first and partially second day of the month.
The naira began the year on the official market with typical volatility, breaking the N1000/$ barrier on Wednesday and closing at N1,035.12 per dollar. The ending price was 4.72 lower than the previous session’s pricing.Â
That marked the third instance in which the currency tested and exceeded the N1,000 threshold. It peaked at N1,099.05/$ earlier in December 2023, which sent shockwaves through the market and raised questions about the FX market’s future.
