The foreign exchange (FX) turnover on the Nigerian official market crashed by 39.95% on Monday.
It went from $269.27 million at the end of last week to $161.69 million.
It appears that traders and financial institutions took a cautious approach on the first trading day of the week.
This cautious approach likely resulted in lower trading volumes as participants took time to evaluate market conditions before making significant moves.
This crash is the first since June 6, 2024, when Afrexim Bank announced the disbursement of $925 million- another tranche of the $3.3 billion crude oil-backed loan agreement it entered into with the NNPC last year.
The bank disclosed this in a statement on its website stating that the current disbursement brings the total payment for the facility to $3.175 billion.
The bank explained that the current payment was raised from crude oil off-takers like Oando Group and Sahara Energy as well as others.
Naira and FX turnover trend following the $925 million announcement
- Data from the FMDQ reveals that on June 6, 2024, the naira stood at N1,481.49/$1, reflecting a 0.48% increase from previous rates on the NAFEM window. This period saw FX turnover values at $213.31 million, marking a 3.84% rise.
- However, on June 7, 2024, the naira slightly depreciated to N1,483.99/$1, showing a marginal decline of 0.17%. Interestingly, this day recorded a surge in FX turnover, reaching $269.27 million, a substantial 26.23% increase.
- By June 10, 2024, the naira marginally appreciated again to N1,483.62/$1, up by 0.02%. Despite this slight improvement in the exchange rate, FX turnover experienced a 39.95% decrease from the previous trading session.
- The significant downturn in FX turnover, recorded four days after the Afrexim Bank’s announcement on June 6, 2024, of the disbursement of $925 million as part of their $3.3 billion crude oil-backed loan agreement, affirms the volatility in Nigeria’s foreign exchange market.
- This substantial injection of funds was aimed at stabilizing the market, but the resulting fluctuations highlight ongoing challenges.
What you should know
Following the unification of the FX market in June 2023 and the subsequent depreciation of the naira, the federal government through the NNPC secured the $3.3 billion crude oil-backed loan facility from the African Export-Import Bank (Afrexim Bank).
The National Economic Council (NEC) had explained last year that it was confident the loan would help stabilize the forex market in light of the severe volatility.
It is noteworthy that the naira traded at a high of N1,505/$1 and a low of N1,410/$1 on Monday.
While the range of trading might not be considered extreme in a highly volatile market, it does indicate notable fluctuations within a single trading day.
This kind of variability can reflect the market’s response to recent financial interventions and shifting supply and demand dynamics.
