The Naira faced more headwinds in the unofficial market amid high demand for the dollar and a widening supply gap.
The Nigerian currency was trading as low as N1750/$ during the midweek trading session on the black market in the country’s business capital, driven by strong demand for the safe-haven currency.
Data from the FMDQ Exchange’s official trading platform show that the value of the Naira increased by N11.4/$, from the N1,690/$ it was trading at on Monday.
Nigeria’s FX market liquidity dropped as Tuesday’s total daily turnover fell from $173.14 million to $128.59 million.
Despite recent interest rate cuts by the world’s largest economy, the Nigerian Naira still faces high selling pressure in the country’s fragile foreign exchange market. Price action indicates that short sellers are firmly in control of the N1,700 support line in the unofficial market.
The Naira performed poorly across the board, even as the CBN’s foreign exchange reserves reached multi-month highs. The CBN’s reserves hit $40 billion, the highest amount in 32 months.
The Nigerian currency has fallen 70% since the middle of last year, while the US Dollar index has shown strength. The Naira is likely to face more selling pressure as demand for foreign exchange rises, driven mainly by foreign tuition, fuel imports, Christmas vacations, and savers seeking to hedge against the Naira.
Persistent issues like weak oil production, high inflation, tighter monetary policies, and low foreign direct investment have also hurt Nigeria’s foreign exchange market.
This pessimistic outlook is forcing businesses with dollar-denominated debt to reduce it if they can, even though borrowing costs in Naira are significantly higher.
This counteracts President Bola Tinubu’s intention to attract more foreign investment to Nigeria by loosening currency controls last year.
MTN Nigeria recently announced it had successfully raised N75.18 billion in Series 11 and 12 Commercial Paper (CP) issuances under its N250 billion CP issuance program.
The CBN allowed the Naira to float more freely after years of being held at an artificially strong level against the dollar. While international observers welcomed the reforms, Nigeria’s inflation spiked to a three-decade high, contributing to a cost-of-living crisis.
U.S. Dollar Index Dips to One-Week Low Against Major Peers
The dollar fell to a one-week low against major peers on Wednesday as the market recovered from the wild rally following Donald Trump’s election, continuing a three-day decline from a one-week peak.
- Russia’s foreign minister stated that the nation would “do everything possible” to prevent the start of nuclear war, hours after Moscow declared it would lower its threshold for a nuclear strike. This caused a brief overnight spike in the dollar and other conventional safe-haven currencies like the yen.
- For the first time since Wednesday of last week, the dollar index, which compares the value of the currency to six major peers, including the yen and euro, dropped to 106.07 index points at about 6 am Nigerian time.
- Strong economic data and the Fed’s cautious remarks have recently contributed to the dollar index’s upward trend. Profit-taking has led to a slight pullback, despite hitting a 52-week high, raising the prospect of consolidation.
- Price consolidation is indicated by technical indicators that are flat but still positive, such as the Moving Average Convergence Divergence (MACD) and Relative Strength Index (RSI). The index is also overbought, which raises the possibility of a reversal.
Expectations of significant fiscal spending, higher tariffs, and stricter immigration under the incoming U.S. administration propelled the index to a one-year high of 107.07 on Thursday.
Trump’s administration’s actions could slow Federal Reserve easing and increase inflation, according to economists.
