Naira notes
Naira hawkers

The Nigerian Naira has been relatively stable in relation to the US Dollar since the CBN began to defend the currency much more aggressively and since the abolition of the NIFEX in favour of the Nigerian Autonomous Foreign Exchange Rate, NAFEX.

Some analysts have indicated that the Naira would continue its stable trend at least till the end of the year. There also seems to be a convergence of rates between the various exchange rate regimes in operation in Nigeria. But a cursory look at events at the currency futures market tend to point to a gradual erosion of the value of the Naira vis a vis the Dollar.

One of the functions performed by a futures market is price discovery. Price discovery is the act of determining the price of an asset based on the interactions between supply and demand in the market. In well-functioning markets, asset prices are determined by the interplay of demand and supply but not so much in Nigeria. However, prices of currency futures as indicated by the NAFEX rate have been inching upwards for about a week or so.

Currently, the NAFEX rate stood at ₦364.20 to the dollar while the spot fx rate at the investors and Exporters (I&E FX) window stood at ₦364.03 to the Dollar as at October 18th.

So, if the Nigerian currency futures market is good enough for price discovery like it ought to, then there is an indication that the Naira is heading to some devaluation, howbeit, small and gradual. We are watching.

Uchenna Ndimele is the President of Quantitative Financial Analytics Ltd. MutualfundsAfrica.com and mutualfundsnigeria.com (both Quantitative Financial Analytics company website) is a leader in supplying mutual fund information, analysis, and commentary on African mutual funds. We provide reliable fund data; and ratings information that will add value to fund managers, the media, individual investors and investment clubs.

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