On the underground market, the value of the Nigerian Naira exceeded N1,450 in relation to the US dollar as the volatile foreign exchange market in Nigeria changed.
The naira lost support at N1450, according to market fundamentals, igniting a fresh wave of unrestricted depreciation that carried on from March, when it was hailed as the best-performing local currency in the world. According to recent price movement, the naira is now trading close to N1500 against the haven currency.
Due to strong demand for the dollar on the black market, the naira dropped to a month-low of 1,470 against the dollar on Friday.
Market analysts have long held that the local currency would not be able to sustain its year-to-date advances in the absence of a comparable fiscal policy move.
Nigeria’s oil output, which is a significant source of foreign exchange revenues, has been declining, which emphasises the need of diversifying the economy and reducing foreign exchange obligations.
According to CBN data, a significant amount of the $1.61 billion in total outflows during this period—$1.12 billion—went towards repaying foreign debt as opposed to protecting the naira. This highlights the increasing pressure that foreign debt is exerting on the nation’s budget and the local currency market.
Because of this, the country’s foreign exchange market will be looking for more support as the CBN is anticipated to maintain its hawkish stance and hike the headline interest rate at its next monetary policy meeting on May 21.
Although profit-taking and a decrease in inflows masked this performance, the CBN made great headway by clearing actual FX backlogs and amplifying rates to attract FPIs and maintain the local money market’s attractiveness.
A potential downturn in the country’s foreign exchange market could result from the maturation of approximately $1.3 billion in naira futures, as noted by Razia Khan, Standard Chartered’s chief economist for Africa and the Middle East, in an interview.
According to Khan, “It is expected that this will increase demand for dollars. The rapid appreciation of the currency benefited offshore investors.”
