Naira Plunges to N1670 after FX Auction to Banks

The naira sank deep in the foreign exchange market in the absence of a sustained FX intervention by the Apex Bank.  In the foreign exchange market, the Naira fell by 4.42%, closing at ₦1,670.65 per dollar at the official market, according to data from the FMDQ platform.

The naira had appreciated significantly to N1600 per US dollar on Friday due to three times FX auctions to authorised dealer banks totaling $148 million. Signaling sustained pressure in the forex market, the exchange rate worsened on Monday in the currency market. Analysts said the naira appears to have found a true value at N1600 range.

This comes in contrast with expectation that the naira would likely reclaim value in the forex market based on some bullish projections. Goldman Sachs maintains a prediction that the naira will close the year at N1200, while Fitch Ratings sets N1450 per US dollar for the same period. In a recent macro note, FSDH analysts said they expect the exchange rate to settle at N1,560 per US dollar.

Some experts however said the naira is suffering from lack of FX liquidity to anchor worsening exchange rate due to surging demand for US dollar for international payment.

“There is need to defend the naira with Nigeria’s strong external reserves. However, it appears that is not how the Central Bank feels about this….Willing buyer, willing seller will damaged the local currency completely”, an industrialist told MarketForces Africa in a discussion.

The Central Bank of Nigeria (CBN) has continued to defend the naira with a series of FX auctions sales to authorised dealer banks. Unfortunately, demand for the US dollar continues to swallow whatever FX sold to banks or bureau de change operators without significant market impact on exchange rates, based on past records.

An investment banking expert said, “It looks like the naira has found its true value acceptable to the monetary authority, citing intermittent FX auctions”.

Latest data showed that Nigerian external reserves surged to $39.365 billion, covering more than 15 months of import payments, as per analysts notes based on trade records. Analysts said though the gross balance in the foreign reserves looks heavy, a significant part of it has been pledged in various government deals – FX swaps and related derivatives.

The naira closed flat at ₦1,730 per US dollar in the parallel market due to a thin trading session. In the global commodities market, oil futures experienced a significant decline, putting the benchmark on track for its worst day in over two years after Iranian energy sites remained unharmed during an Israeli strike over the weekend.

Brent crude traded at approximately $71.83, while WTI dropped to $67.68. Meanwhile, gold’s impressive rally paused as U.S.  Treasury yields and the dollar strengthened.

Investors look forward to various U.S. economic data being released this week for insights on the Federal Reserve’s interest rate plans, with gold trading at around $2,754.90 per ounce. #Naira Plunges to N1670 after FX Auction to Banks Naira Rises against US Dollar Ahead of Sept. FX Auction