Naira Skids as CBN Skips Retail Dutch Auction FX Sales

The naira sank further across the foreign exchange (FX) markets as indication emerged that the Central Bank of Nigeria (CBN) could abandon its re-introduced retail Dutch auction system.

According to spot FX data obtained from the FMDQ platform, the Naira depreciated by 0.05%, closing at ₦1,660.49 per US dollar at the official market on Thursday.

FX demand outpaced total US dollar volume available to cover daily transactions at the Nigerian autonomous foreign exchange market. This caused a slight price decline in exchange rate in the official window.

The external reserves rose to 2 years high this week, settling at about $38.8 billion, which some analysts believe is more than sufficient to back the local currency in the forex markets.

But, huge chunk of the gross balance has been pledged as collateral for some oil-backed loan deals, FX swap and other foreign reserved related deals.

The Central Bank of Nigeria (CBN) has continue to test policies to keep exchange rate volatility in check. MarketForces Africa FX tracking index shows that 15 months after devaluation, the naira has remained depressed as demand for US dollar weakened the strength of the local currency.

After April trophy as the best performing local currency, the World Bank has rated the naira very low in its latest ranking. According to some financial experts, naira has settled with mild volatility around the range of N1500 and N1,700.

Exchange rates have been hovering around this levels since April 2024 with the CBN targeted FX auctions across the official and informal currency markets.

In August, the CBN re-introduced retail Dutch auction system with the aim to sell US dollar to FX users on demand basis. The market witnessed more than $1.1 billion bids from banks, representing their customers who required forex for eligible transactions.

Since August 8 when the Dutch auction was sold, the CBN skipped the auction for Sept. and analysts are already projecting that there may be no similar FX sales in Oct.

As the permutation about the re-introduction of retail Dutch auction appeared to have failed, the CBN has also launched a fresh initiative to automate FX trading platform.

The naira closed at ₦1,690 to the US dollar in the parallel market, from N1680 in the previous day, according to channel check. This extended the gap between official and parallel market rates to N30 – fueling speculative FX trading in the informal segment.

In the global commodities market, oil prices decreased as concerns about a potential supply disruption in the Middle East diminished, with a surplus expected in the market next year. Brent crude fell by 0.54% to $73.82, and WTI dropped by 0.31% to $70.17.

In contrast, gold prices reached all-time highs due to uncertainty surrounding the U.S. presidential elections and the conflict in the Middle East, which drove investors toward this safe-haven asset. The monetary policy easing also contributed to higher gold prices, which hit $2,708.50 per ounce. #Naira Skids as CBN Skips Retail Dutch Auction FX Sales

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