Currency speculators lose as FX market dynamics change
Forex traders who have been hoarding dollars in anticipation of a further drop in the naira exchange rate have started offloading the greenback at a loss as the Nigerian naira gained massively against the US dollar on the black market after hitting a low record high of over N900/$1 the previous week.
In five days, the momentum in the forex market shifted in favor of the local currency as the naira gained over 200 naira to trade at an average of 680 naira/$1 at the close of trading on Friday, November 11, 2022.
In a conversation with several black market traders on Friday, Nigerian Tribune found that the US dollar was selling between N/$714 and N/$680 for cash transactions, representing a gain of 28% from N870. /$1 recorded in major high street exchanges last week on Friday. .
Black market traders attributed the sudden improvement in the value of the local currency to lower demand and increased inflows of currency into the market.
Other market watchers suspect that the Central Bank of Nigeria (CBN) must have intervened in the market to halt the freefall of the Naira which was already heading towards N1,000/$1.
Over the years, the CBN has always maintained a culture of intervention in the various foreign exchange markets such as Investors and Exporters (I&E), and
Secondary Market Intervention Selling Windows (SMIS), respectively, following difficulties in these markets with foreign exchange supply.
Therefore, this frequent intervention with the aim of saving the local currency was the main trigger for this decline in foreign exchange reserves.
Meanwhile, the latest data obtained from the CBN website showed that Nigeria’s gross external reserves fell 8.07% or $3.27 billion in more than 10 months to stand at 37.25. billion dollars at the beginning of November against 40.52 billion dollars at the beginning of the year.
The decline could be attributed to the non-influx of petrodollars into the Nigerian economy despite rising crude oil prices due to rising oil demand since Russia’s invasion of Ukraine in February 2022.
“Nigeria’s gross reserves have declined despite rising oil prices which we don’t see rising any time soon due to rising imports as well as continued demand for foreign exchange to finance services such as school fees, medical tourism, etc. combination of these factors to continue to put pressure on external reserves and exchange rates ahead of the 2023 general elections.
“Having said that, we can add that weak inflows of foreign investment into the economy in the face of a difficult business environment will trigger further exchange rate depreciation due to pressure on the local currency and raise concerns for the apex bank. “, said the analysts. of Cowry Assets Management Limited said.
Year-to-date, the naira has lost value against the greenback by more than five percent (N23.43/USD) so far at N446.10/USD as of November 10, 2022 , from 422.67 N/USD at the start of the year on the Investors and Exporters FX window.
In the same vein, Nigeria’s gross official reserves declined by around $866 million to $37.37 billion in October.
The level reported this time is the second highest since May this year and follows a drop of $772 million in September 2022.
Brent crude is trading above $96 a barrel at the time of writing amid news that China has moved to ease its previously imposed COVID-19 restrictions.
The price of oil had previously peaked at $123 a barrel in June this year and Nigeria has seen little to no revenue from oil sales this year despite the rise.
Analysts attributed this to low productivity in the oil sector resulting from large-scale theft of crude oil and vandalism of pipelines.
READ ALSO FROM NIGERIAN TRIBUNE
Recently, an OPEC report said that Nigeria’s daily oil production and production increased slightly to 1.09 million barrels per day in September 2022 from 1.06 million barrels per day reported in August. of this year.
The data actually excludes condensate and the current figure is below the potential production of two million barrels per day.
Meanwhile, CBN data vault checks showed total reserves could cover 8.5 months of imports on a balance of payments basis for the 12 months to June 2022, and 6.5 months when services are added.