The Naira has been stable for three working days running at the parallel segment of the foreign exchange market against the United States dollar. It sold at N450 to $1 on Friday and has remained at that rate so far.
The stability of the naira was strengthened as the commodity-based currency’s (naira) major earnings, crude oil, remained above the $40 dollar mark, thereby increasing foreign exchange inflows to the country’s foreign exchange reserves.
“Commodities and emerging market currencies are clearly finding it easier to rise against the dollar on hopes of economic recovery, but it is a different story when it comes to the yen,” said Junichi Ishikawa, senior foreign exchange strategist at IG Securities in Tokyo.
Correlation between crude oil and the naira: The crude oil sector provides around 90% of Nigeria’s foreign exchange earnings and around 70% of its budgetary revenues, thereby helping to boost Nigeria’s monetary assets and providing the needed ammunition to stabilize the naira.
The macro fundamentals surrounding Nigeria’s major export, including the recent surge in crude oil prices to about $41, seem to have helped stabilize the naira in recent days.
In addition, Nigeria’s central bank had stated that it would use all the monetary tools it had to rescue the Nigerian economy from the fallouts of the COVID-19 induced global economic strain and stabilize the naira with some concrete steps it had taken to tackle currency speculators.
Some weeks ago, Nigeria’s central bank resumed the weekly dollar sales of $100 million for small businesses and individuals who are in genuine need of Foreign exchange.