The naira closed last week at a rate of N387 to $1 on the spot market, while the two-week currency futures traded at N389.84. The naira was quoted at N361 to $1 on the official market, which is backed by Nigeria’s central bank.
Specifically, the 1-month (+0.1% to N388.71/USD), 3-month (+0.4% to N392.70/USD), 6-month (+0.8% to N398.45/USD), and 1-year (+2.3% to N416.25/USD) contracts all appreciated against the (United States dollar.
However, at the currency futures market, the 5 years futures were quoted at N578.37 to $1, just off a record low of N584.11 recorded last week, as dollar scarcity for businesses and individuals in genuine need continued to raise concerns.
Nigeria’s local currency has been hitting record lows on the parallel and over-the-counter spot markets since early March when the Central Bank of Nigeria (CBN) adjusted the value of the naira by 15%.
READ MORE: Naira falls at the black market despite growing Nigerian foreign exchange reserves
Victor Silas, an investment analyst spoke on the phone with Nairametrics, giving insight on future stability in the naira. He said:
“For the outlook on the naira in the coming week, I do not foresee significant changes to the current rate, considering sentiments at the I&E windows strengthening last week to N385.75/$ levels and the parallel market stable at 440/450 levels.
“There are no strong fundamentals to move those rates from current levels. I expect rates to be stable in the coming week.”
It can be recalled that some weeks ago, CBN resumed dollar sales to individuals and businesses with genuine needs, selling around $100 million per week, thereby helping to bring some stability to Nigeria’s local currency, though it is yet to resume selling to foreign-based investors. It had scrapped a planned auction due to lockdown measures to slow the COVID-19 pandemic.
A Forex dealer at a leading tier 1 bank talked about the fundamentals expected to happen at the spot market. He said:
“The CBN will sustain its interventions in various windows with probable injection of $80million to Invisibles and SME (Small Medium Enterprises) segment at $/₦383.75 while the CBN will conduct its Bi-weekly Retail SMIS Auction on Friday with stop rate at $/₦365 for 180-day forward.
“The scarcity of funds in the Investors’ and Exporters’ FX window will persist this week as the current depressed yield in the Fixed Income is unattractive to entice fresh inflows from foreign portfolio investors amidst significant convertibility risk and negative real return.
“Naira will trade at sub $/₦390 levels through-out the week.”
READ MORE: Naira further strengthened at the I&E forex window, as local currency stabilizes
The CBN recently said that it would use all the monetary tools it had to rescue the Nigerian economy from the fallouts of the COVID-19 induced global economic strain, and stabilize the naira. It had also taken some concrete steps to tackle currency speculators.
Philip Anegbe, Team Lead, CardinalStone Research told Nairametrics what he expects of the naira:
“With the recent recovery in oil price and greater scope for more concessionary borrowing/debt reliefs, we now expect the CBN to reprice the naira to N400/$ at the I&E window by year end, with a trading band of N390/$ to N410/$.
“However, our fundamentally obtained fair value remains N440/$ even though the reality of CBN’s currency management makes a full tilt to market-driven pricing highly unlikely this year.”
