The foreign exchange market experienced a significant fluctuation at the official NAFEM window on Thursday, November 2nd, 2023, as the naira reached an intraday high of N1,018.6 to the US dollar.
This marked the second consecutive day that the exchange rate breached the N1,000 to $1 mark, following an earlier peak of N1,101/$1.
Contrary to the anticipations of currency analysts, the naira’s value did not strengthen despite the Central Bank of Nigeria’s (CBN) proactive steps in clearing the backlog of forex demand by banks and airlines. Observers had predicted a firmer naira in response to these measures.
At the NAFEM, the exchange rate is determined by three key figures: the intraday high, the intraday low, and the closing rate. In addition to these, the reference rate known as NAFEX also plays a crucial role.
The intraday high refers to the highest rate at which the naira trades against the dollar within the trading day, while the intraday low is the lowest rate recorded. The closing rate signifies the final rate at which transactions are executed on a given day.
Nairametrics’ tracking reveals that over the last 12 trading days, the exchange rate has oscillated within the N890-N999 band, consistently closing at lower levels by the end of each day.
For instance, although the intraday high touched N1,018.6/$1, the closing rate was significantly lower at N798.75/$1, indicating a substantial premium disparity of approximately N220/$1. Meanwhile, the intraday low was reported at N701/$1.
Black market
In the parallel market, known colloquially as the black market where forex transactions are conducted unofficially, rates have been quoted around N1,175/$1.
- The peer-to-peer exchange platform, generally showing stronger rates, reported figures around N1,137/$1.
- As of 8 p.m. on the same day, peer-to-peer trading rates dipped to as low as N1,038/$1, which closed considerably stronger compared to earlier rates.
- This trend may reflect expectations among black market traders for the naira to gain strength, prompting them to reduce their forex holdings to mitigate potential losses.
Previously, Nairametrics reported the CBN’s concerted efforts to alleviate the forex scarcity that has been constraining banks and airline companies by clearing their pending forex requests.
It is still a matter of speculation whether the CBN’s external reserves, which were approximately $33.3 billion as of October 31, 2023, have been tapped into for these interventions.
The actual sources of the funds used to manage the forex supply may become clearer with subsequent disclosures or updates to the financial statements of the CBN.
The dynamics of the forex market remain complex, and despite the central bank’s interventions, the naira’s performance continues to be influenced by multiple factors.
As such, Nairametrics will maintain its commitment to providing timely and accurate reporting on the evolving situation, offering readers a comprehensive view of the Nigerian foreign exchange market.