Naira Rebounds to N1,576/$ as FX Liquidity Surges by 232%
Naira Strengthens Across FX Markets
On Thursday, the Nigerian naira reversed its three-day losing streak, appreciating significantly against the U.S. dollar across various foreign exchange (FX) markets. The local currency surged by 5.8%, gaining N91.32 to settle at N1,576.10 per dollar compared to N1,667.42 recorded on Wednesday at the Nigerian Autonomous Foreign Exchange Market (NAFEM).
Liquidity Surge Boosts Naira’s Performance
The appreciation of the naira followed a substantial increase in dollar liquidity. The total volume of dollars traded at NAFEM soared by 232.49%, rising to $334.05 million on Thursday, up from $100.47 million recorded the previous day. This surge in liquidity significantly contributed to the currency’s performance across the FX markets.
Central Bank’s Intervention
The Central Bank of Nigeria (CBN) played a crucial role in boosting liquidity towards the end of Thursday’s trading session by selling approximately $60 million to commercial banks. This intervention helped to meet market demand and stabilize the naira’s value.
Additionally, the CBN supplied dollars to Bureau De Change (BDC) operators at a rate of N1,590 per dollar. This move was designed to further enhance liquidity in the FX market and cater to retail market demand for invisible transactions, such as personal travel allowances, medical payments, and school fees.
Parallel Market Gains
In the parallel market, commonly known as the black market, the naira also recorded gains. The currency appreciated by N5, closing at N1,695 per dollar on Thursday, compared to N1,700 on Wednesday.
Intraday Trading Trends
Thursday’s intraday trading session saw an intraday high of N1,699 per dollar, which was nearly the same as the N1,700 quoted on Wednesday. The intraday low printed at N1,567 per dollar, an improvement from the N1,600 recorded on Wednesday.
CBN’s Strategy to Boost Retail Market Liquidity
In a bid to improve liquidity in the retail segment of the FX market, the CBN announced on Wednesday that each eligible Bureau De Change (BDC) operator would be allowed to purchase up to $20,000 directly from the Central Bank. This initiative is aimed at meeting the increasing demand for invisible transactions and stabilizing the market.
According to the CBN’s statement, the initiative will provide a steady supply of dollars to retail buyers, ensuring sufficient liquidity in the FX market and mitigating volatility in the value of the naira.
Rate Hike and Market Reactions
The CBN’s intervention comes shortly after the Monetary Policy Committee (MPC) of Nigeria unexpectedly raised interest rates, a move that led to the naira’s depreciation to N1,667 per dollar earlier in the week. The rate hike, intended to curb inflationary pressures, resulted in a temporary weakening of the naira before Thursday’s rebound.
Conclusion
The naira’s recent performance highlights the importance of liquidity in stabilizing the currency’s value in the FX market. With the CBN’s strategic interventions and the significant increase in dollar supply, the naira was able to recover from its earlier depreciation. However, the ongoing fluctuations in the exchange rate underscore the challenges facing the Nigerian economy, including inflation, limited foreign reserves, and external market pressures.
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