Nigeria’s foreign exchange reserves now stand at $36.57 billion, having increased from $33.42 billion as of April 29, 2020. This shows a gain of $3.15 billion dollars in 38 days.
The naira was pretty stable at Nigeria’s parallel market, as it did not break the support level of N450 to $1 in the last 7 days.
At the forwards market, the naira dropped against the U.S dollar across all forward contracts. Specifically, 6-month (-1.5% to N403.18/USD), and 1-year (-2.5% to N426.56/USD), contracts all lost some gains against the U.S dollar.
Funding rates expanded significantly last week on the back of the N600 billion retail FX funding and CRR Debit.
OBB and Overnight rates rose by 1340 bps and 1380 bps to close the week at 15.60% and 16.70% from 2.20% and 2.90% respectively w/w. Market liquidity is estimated to be c.N150 billion according to market sources.
Brent crude hit a three-month high, as it gained about 5% which pushed it above $40 per barrel. This was mostly based on the impressive Job data results coming from the U.S.
Brent crude gained 4.80% to settle at $41.91. Earlier, it had hit a session peak of $42.45, its highest point since early March 2020.
Experts’ analysis and outlook
Michael Chukwuka, a foreign exchange currency dealer at one of the Nigeria’s leading investment bank.
He said, “In the real sense of things now, I believe the CBN would continue to show strength in being able to control the Naira been devalued beyond a certain level.
“The Naira move we saw in recent times from 360 levels to 455 on cash and 480 in the transfer market was based on speculators and panic buying. Those levels are not realistic levels in this short term.”
He explained that the panic buying was not necessary as the reserves has gotten some respite from the foreign borrowings. This he said would be deployed by the CBN to push down the rates.
“We saw the CBN intervening with the special wholesale to banks and this actually calmed the storm in the market with cooperates been confident in the CBN.
“This has continued with the usual Retail sales to banks and in reality, businesses have slowed down so demands too dropped a bit. The fear is covering natured obligations now as most banks are not even opening new letters of credit,” he added.
He described CBN’s move to sell SME and invisible funds to Merchant banks, which was the first of its kind $150,000.00, as welcome development. He added that the development has kept building confidence in some way.
“We have seen rates reacting and dropping to $440 levels last week as government decided to open the economy. That speculators market is a weak market as they have no liver to withstand the sales from CBN.
“In reality, we know rates would range from N380-440 thereabout but N470 levels are unrealistic for now.”
Eventually, rates would get there as these OMO rates won’t attract FPI&FDI they would rather invest in euro bonds and have a safe haven.
Chukwuka added that in the near–term rates would hover around current levels nothing to panic about.
Omeiza Makoju, ACCA an energy expert at an upstream oil producing company, explained that the steady appreciation of the Naira against the US Dollar can be linked to recent developments in the economy.
According to him, the developments are gradual global easing of the COVID-19 lockdown, which has increased business activities in the economy, the various interventions of the CBN, improving oil prices as a result of increasing demand and the recent extension of OPEC productions cuts to the end of July 2020.
In addition to these, he explained that the activities of currency speculators have slowed down significantly as they have become more cautious of betting against the Naira at this time.
Following this apparent correction of the overpriced US Dollar and the improving economic indices, “it is difficult to say how much more the Naira will appreciate.
“I expect that with the expensive support the CBN continues to gives the Naira, the exchange rate will fall within the range of N440-N450/$ in coming week,” he said.