The Nigerian foreign exchange market saw a historic surge in activity on Friday, November 8, with a record-breaking turnover of $1.403 billion, the highest single-day transaction volume tracked by Nairametrics.
This surpassed the previous high of $857 million recorded on March 28, underscoring a day of intensified trading and liquidity flow. To put this into context, daily average daily turnover for the month of October was $245 million.
Friday’s trading closed with the naira exchanging at N1,678/$1, amid continued high demand for the dollar, contributing to the increased supply observed.
What the data is saying
- Closing Exchange Rate: The naira ended at N1,678/$1 on Friday, maintaining its all-time high close set a day earlier.
- Intra-day Highs and Lows: Friday saw an intra-day high of N1,698/$1 and a low of N1,609/$1, with the prior day reaching an intra-day peak of N1,700 and a low of N1,635/$1.
- The sustained high levels over two days reflect the ongoing strain in the forex market.
- Parallel Market Rate: The parallel market rate closed even higher, reaching up to N1,730/$1 as tracked by Nairametrics on Friday. This gap between the official and parallel market rates highlights the widening exchange rate disparity due to elevated demand pressures.
- Market Turnover: The $1.403 billion recorded on Friday represents a measure of total forex traded in the market, demonstrating a sharp increase in activity.
Market turnover indicates the volume of foreign currency transactions within a trading day, and higher turnover generally suggests stronger liquidity as buyers and sellers engage more actively.
Currency Trends: Throughout 2024, the naira has faced increasing depreciation driven by high inflation and fiscal imbalances.
- The exchange rate has been down a whoopin 45% this year, making it one of the worst performing currencies globally.
- The significant exchange rate volatility observed in recent months mirrors ongoing fiscal and economic pressures, which challenge the Central Bank of Nigeria’s (CBN) monetary policy interventions.
- For instance, the recent turnover spike highlights increased forex supply efforts in response to persistent dollar demand, especially from importers and autonomous traders.
- The central bank noted a substantial increase in diaspora remittances (up 100% to $600 million monthly) suggesting supply was gaining momentup
Why the surge in Forex Turnover?
The unprecedented turnover on Friday can be attributed to elevated demand from businesses and investors urgently seeking dollars.
- This heightened activity appears to reflect a mix of both CBN interventions and market-driven trades aimed at stabilizing the naira amidst its depreciating trend.
- Analysts note that the naira’s declining value is prompting traders to buy in anticipation of further depreciation, a trend that could exacerbate demand if left unchecked.
- The apex bank has also seen its coffers swell in recent weeks as new foreign denominated bond sales, increase in crude oil forex flows impact positively on reserves.
- The surge in forex turnover is also likely a result of CBN effort to get corporates with export potentials to repatriate their forex holdings in the official market
What You Should Know
As a response to mounting pressure, the CBN has been injecting forex into the official market to sustain liquidity levels.
- This strategy is aimed at temporarily stabilizing the exchange rate, although it remains susceptible to ongoing demand pressures.
- The apex bank remains one of the larger stakeholders in the forex market even though it has curtailed its spate of intervention under Cardoso as CBN Governor.
- Nigeria’s foreign reserves, which rose to $40 billion, provide a vital buffer for the CBN.
- However, this reserve level may face challenges as demand continues.
- In efforts to shore up dollar inflows, the government has announced plans to issue dollar-denominated bonds, which could supplement reserves and market liquidity in the coming months.
