As Naira depreciates across all markets
THE volume of dollars traded (turnover) in the Investors and Exporters (I&E) window of the Nigerian foreign exchange market fell 69 percent, year-on-year (YoY), to $1.5 billion in October 2022, from $4.88 billion in October 2021.
No immediate reason for the sharp decline was given but dealers said it could be attributed to supply side inadequacies.
Details of forex trade data from FMDQ Exchange, show that trade volume declined in three out of the four weeks of transactions during the month.
Meanwhile, the Naira depreciated by N27.9 during the period as the indicative exchange rate of the window rose to N443 per dollar on October 31st, 2022, from N415.1 per dollar on October 28, 2021.
The Naira also depreciated by N260 in the parallel market as the indicative exchange rate for the window rose to N830 per dollar on October 31, 2022, from N570 per dollar on October 29, 2021.
Analysts in the financial sector have projected mixed trade performance for the Naira this week, and that news of its redesigning would push traders and users to offload their holdings to avoid further devaluation.
In its outlook for the Naira this week titled: “Naira down across FX Markets on Central Bank of Nigeria, CBN’s Currency redesign announcement”, analysts at Cowry Assets Management Limited stated: “This week, we expect the naira to trade in a relatively calm manner.
“However, the news on the redesigning of the legal tender is expected to drive activities across market segments as traders and users will look to offload their holdings for more of the greenback as means to hedge against further devaluations.”
Similarly, in their October insight titled: “The market must always win”, analysts at Financial Derivatives Company highlighted the impact of the exchange rate, market structure, failure on the economy saying: “The Naira depreciation is major stoking factor of inflation. Dollar scarcity is fueling smuggling of fertilizer bags to other countries leading to spike in fertilizer prices, limiting local use of fertilizers and resulting in lower agricultural output.”
“CBN’s ability to defend the Naira will be affected by declining reserves as oil prices fell by 33 percent in the last three months.”