Naira Drops by 4.1% Amidst US Dollar Shortage in FX Market

Samuel Mobolaji

The Naira has depreciated significantly across foreign exchange (FX) markets, primarily due to a shortage of US dollars. This decline was reflected in negative exchange rates as FX supply challenges continue to impact the economy.

Spot data from the FMDQ platform indicated that the Naira dropped by 4.06 per cent, closing at N1, 625.13 per US dollar. In the parallel market, the Naira was even weaker, closing at N1,670 to the dollar, driven by high demand for invisible payments.

“The direction of exchange rates hinges on the available forex in the market compared to the demand from users needing to meet US dollar-denominated liabilities.”

The foreign currency scarcity persists despite improvements in Nigeria’s oil production output. While global commodity market uncertainties remain, crude oil prices have stayed above $60 per barrel, inching close to $90. Today, oil prices took a hit, with Brent dropping to $76.57 and US benchmark WTI falling to $73.27 per barrel.

Despite these challenges, the Central Bank of Nigeria (CBN) reported an upward trend in external reserves, which climbed to $38.670 billion on Tuesday, bolstered by recent inflows.

Last Friday, the Nigerian Autonomous Foreign Exchange Market (NAFEM) rate fluctuated between N1,530 and N1,699, closing at N1,631.2 per US dollar in the spot market. According to Coronation Research, the week-on-week depreciation of the exchange rate stands at 5.9 per cent, equating to N90.4.

In the parallel market, the Naira averaged N1,688 per US dollar on Friday, revealing an FX gap of 2.4 per cent. Data from FMDQ indicated that total NAFEM turnover rose by 10.6 per cent, reaching US$1.4 billion, with the official FX window recording inflows of USD645 million.

The CBN contributed 23.3 per cent of the total inflow, while foreign portfolio investors (FPIs) accounted for 14.2 per cent, and non-bank corporates provided 20 per cent. Exporters contributed 28.7 per cent, and other sources made up 13.9 per cent.

Additionally, gold prices have retreated due to a strengthening dollar and reduced expectations for a more significant rate cut in November.