The Nigerian official foreign exchange (FX) market experienced a marked decline in turnover during the first two weeks of August, coinciding with the recent Retail Dutch Auction conducted by the Central Bank of Nigeria (CBN).
Data obtained from the FMDQ by Nairalytics, the research arm of Nairametrics, reveals a significant reduction of $409.16 million, with total turnover falling to $1.5 billion between August 5 and 16, 2024, compared to $1.91 billion recorded between July 22 and August 2, 2024.
Despite this overall downturn, a weekly analysis indicates a 15% increase in turnover between the first and second weeks of August, rising from $698.01 million to $804.74 million.
Naira crashed by 5% against the dollar
In the period under review between the first two weeks of August and the last two weeks of July, the naira crashed by 5% against the dollar.
The local currency moved from N1,500.32/$1 on July 22, 2024, to N1,579.89/$1 on the official market on August 16, 2024.
During this period, the most significant depreciation was observed on July 23, when the naira fell by 3.13% to N1,548.76/$1.
This trend continues, albeit with smaller percentage drops, leading up to July 26 when the rate reached N1,609.29/$1.
The highest exchange rate within the period is recorded on August 2 at N1,617.08/$1.
However, there are days of slight appreciation, such as on July 31, August 1, and August 9, where the naira briefly strengthens before continuing its depreciation.
The data suggests a market under pressure, with the naira consistently depreciating against the dollar, reflecting underlying economic challenges, possibly including demand-supply imbalances in the foreign exchange market.
What you should know
The fluctuations in FX turnover indicate varying levels of market liquidity or intervention by market regulators to stabilize the naira or manage volatility.
Also, the correlation between days with higher turnover and slight appreciation of the naira hints at possible interventions or increased supply of dollars on those days to support the currency.
In the first week of August, the Central Bank of Nigeria (CBN) sold $876.26 million at N1,495/$1 to 26 qualified banks in its latest Retail Dutch Auction.
According to a statement from the CBN, a total bid of $1.18 billion was received from 32 dealer banks. However, bids from six banks were disqualified, as four banks did not meet up with the deadline while two did not provide bids in their submitted templates.
Nairametrics earlier reported that the forex turnover on the FMDQ, where the exchange rate trades officially, closed at a turnover of just $61.9 million on August 6, 2024, the lowest since January 2024.
This was also the second-lowest daily average turnover this year, second only to the $59.6 million recorded on January 8, 2024, which is the lowest this year.
