Despite improving fundamentals in the country’s foreign exchange market, the Nigerian naira remained relatively stable on the unofficial market on Wednesday, bouncing about N1,750/$.
Even after a hawkish central bank recently boosted interest rates, the Nigerian naira is still under considerable selling pressure in the country’s unstable foreign exchange market.
Price movement indicates that short sellers hold a tight grip over the N1,725 support line in the unofficial market.
Sturdy Foundations in Nigeria’s Exchange Market
Despite the CBN’s foreign exchange reserves reaching multi-month highs, the Naira is underperforming this year. The CBN’s reserves topped $40 billion for the first time in 32 months.
- Despite Nigeria’s recent successful $2.2 billion Eurobond sale, the country’s currency remained lukewarm on the black market. The foreign exchange spot rate was oversubscribed by $9 billion at the US dollar auction.
- Investor interest in Nigeria’s first Eurobond offering in almost two years was high. For the 2031 and 2034 maturities, the funds had invested $700 million and $1.05 billion, respectively. The yields on the re-offer and coupon for the 10-year and 6-year notes were 10.375 and 9.625 percent, respectively.
“This result reflects the resiliency of Nigerian credit and the growing trust of investors. It also shows that we have improved our liquidity position and are still able to access international markets to support the government’s financing needs,” Governor of the Central Bank of Nigeria, Mr. Olayemi Cardoso, said.
- The notes will be listed on the official list of the UK Listing Authority and traded on the regulated markets of the London Stock Exchange, the Nigerian Exchange Limited, and the FMDQ Securities Exchange Limited. The DMO states, “the government’s budgetary needs and the financing of the fiscal deficit in 2024 will be supported by the proceeds from this Eurobond issuance.”
- The CBN launched an FX computerized matching mechanism to restore the Naira’s real value. “We are introducing an electronic FX matching system, which has proven effective in other markets, to further enhance the functionality of the foreign exchange market,” the CBN chairman said at the 59th annual bankers’ dinner hosted by the Chartered Institute of Bankers on Friday.
The automated foreign exchange platform is anticipated to increase the transparency of currency trading on the official market in Nigeria.
Naira’s Long-Term Prospects Are Mixed
According to the international rating agency Fitch Ratings, the Nigerian Central Bank has made numerous attempts to stabilize the country’s foreign exchange market, but it has not yet done so.
- In somewhat contrast to Fitch’s assessment, the International Monetary Fund (IMF) stated that the Naira was showing indications of stability due to recent interest rate increases and CBN efforts to pay outstanding foreign exchange liabilities.
- In its Global Financial Stability Report, the IMF credited Nigerian authorities’ policy actions, particularly the CBN’s attempts to pay off past-due foreign exchange liabilities, with the apparent stabilization of the Naira.
“Policy actions by local authorities have also resulted in positive developments; for example, in Nigeria, rate hikes and the clearing of overdue domestic central bank foreign exchange obligations have helped the Naira show more signs of stability,” the IMF report states.
US Dollar Index Stable
As traders assessed the possibility of a Federal Reserve interest rate drop this month, the haven currency stabilized the global market.
- As French parliamentarians got ready to vote on no-confidence motions later in the day, which were virtually certain to overthrow the government, the Euro encountered challenges. The euro was nevertheless higher than its most recent two-year low.
- In the early hours of Wednesday, the U.S. dollar index, which compares the currency to six main rivals, including the euro and the yen, gained almost ten basis points to close at 106.39 index points.
- The dollar’s strength was supported in October by a minor increase in job vacancies and a fall in layoffs, despite the Federal Reserve’s lack of clear guidance on what it intends to do at its next two-week policy meeting.
The U.S. payroll data, due later today, will provide more details on the situation. For more information on the rate outlook, traders anticipate Friday’s release of crucial monthly payroll data.
