In a persistent struggle, the Naira hovers near its all-time low, defying efforts to stabilize it despite improved liquidity. Market fundamentals reveal that the recent $2.2 billion facility from the African Import Export Bank (AFREXIMBANK) has not shielded the Naira from the relentless demand for the dollar.
The declining trend of the Naira remains unabated, raising concerns about its potential impact on the overall economy. Despite the Central Bank of Nigeria’s (CBN) recent interventions to support the foreign exchange market, the Naira faces an uphill battle.
Although the dollar reached N1,435.53, surpassing Thursday’s N1,461.90 at the Nigerian Autonomous Foreign Exchange Market (NAFEM), it still lingers near its historical low. Notably, the daily turnover of foreign exchange on Nigeria’s official market rose from $156.86 million on Thursday to $440.13 million on Friday.
The surge in the U.S. dollar index to a seven-week high, driven by robust job additions in January, diminishes the likelihood of Federal Reserve interest rate cuts. Nonfarm payrolls in the U.S. exceeded expectations, growing by 353,000, while the average hourly wage also experienced positive growth.
Aminu Gwadabe, President of the Association of Bureau De Change Operators of Nigeria (ABCON), acknowledged the significance of the $2.2 billion Afrexim Bank crude prepayment facility. However, he expressed skepticism about its adequacy given the daily demand in the Investors and Exporters (I&E) window.
The Central Bank’s decision to remove the ceiling on International Money Transfer Operators (IMTOs) based on the previous day’s closing rate aims to provide more flexibility. This follows concerns about banks’ foreign exchange exposures due to the Naira’s depreciation against the U.S. dollar.
Despite Federal Reserve Chair Jerome Powell’s statement ruling out a rate cut in March, the dollar has exhibited weakening trends recently, influenced by declining Treasury yields. Financial stability concerns of U.S. regional banks initially boosted demand for safe-haven assets, including Treasuries.
Repositioning, following a positive January for the dollar and higher Treasury yields, further complicates the fate of the Naira. Traders are recalibrating expectations, with a reduced 21% likelihood of a rate cut in March and a 75% probability for May, according to the CME Group’s FedWatch Tool. The intricate interplay of global economic factors and market dynamics keeps the Naira’s future uncertain.
Credit: Nairametrics
