By Babajide Komolafe
The naira depreciated again at the official market and the interbank market yesterday as the Central Bank of Nigeria failed to meet foreign exchange demand at the Wholesale Dutch Auction System (WDAS).

The naira depreciated by nine kobo at the official market while it lost three kobo at the interbank. The central bank sold $350 million at 148.89 naira a dollar at WDAS  auction on Wednesday compared to a peak demand of $404.65 million. The bank had earlier sold $250 million at 148.81 naira a dollar on Monday.

On the interbank market, the naira was trading at 151.42 a dollar, weaker than the 151.39 it closed at on Tuesday, as the market reacted to the shortfall in forex su

naira sign

pply at the official auction.

The naira has been on the downward trend since Monday due to unsatisfied demand at WDAS  as well as anxiety over the fortunes of the naira in face of declining external reserves.

On Monday, the naira depreciated in both the official market and the interbank market owing amidst increasing anxiety over continues decline of the nation’s external reserve. Result of the Wholesale Dutch Auction System (WDAS) session conducted by the Central Bank of Nigeria (CBN) yesterday show that the official exchange rate rose to N148.81 per dollar from N148.75 last week, indicating six kobo depreciation.

Also at the interbank foreign exchange market, the naira depreciated by 11 kobo as the interbank rate rose to N151.3175 per dollar to N151.205 per dollar.

On Tuesday, the naira depreciated further in the interbank foreign exchange market losing  six kobo. Investigation revealed that the interbank foreign exchange rate rose slightly to N151.3825 yesterday up from N151.3175 per dollar on Monday. Interbank market sources told Vanguard that the depreciation was prompted by excess demand occasioned by the 50 per cent fall in foreign exchange supplied by the Central bank of Nigeria at the foreign exchange auction conducted on Monday.

“We see the naira depreciating further for the rest of the week since most of the oil companies are done with their month-end dollar sales,” one dealer said. Importers and foreign investors repatriating their profits after the release of full-year results of scores of companies have put a lot pressure on both markets in the last two months, forcing the central bank to raise its dollar offer from $250 million on average per auction to between $350-450 million.

Analysts said with the sharp decline in Nigeria’s foreign exchange reserves, the central bank’s ability to support the market was being threatened. The reserves fell to $37.81 billion on Monday from $38.79 billion a week earlier.

Meanwhile, the euro yesterday gained for second day against the dollar and yen as stocks and commodities advanced before the European Central Bank announces a decision tomorrow on interest rates.

The dollar fell against most major counterparts as Federal Reserve Chairman Ben S. Bernanke reiterated to a congressional panel that the U.S. recovery is being restrained by the housing and commercial real-estate markets and repeated his call for lawmakers to come up with a long-term deficit-reduction plan. The yen fell against most major peers on speculation the global economy will weather Europe’s debt crisis.

“The stock market rally is positive for sentiment on a near-term basis, and the euro may see a relief rally as risk aversion eases,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp., the world’s largest custodial bank, with more than $20 trillion in assets under administration. “The ECB meeting will be an opportunity for it to comment on how it intends to address the deterioration in financial market conditions and economic outlook.”

The euro strengthened 0.5 percent to $1.2030 at 10:15 a.m. in New York, from $1.1973 yesterday. The euro appreciated 0.4 percent to 109.91 yen, from 109.51. The dollar was at 91.37 yen, compared with 91.46.

The Swiss franc touched a record high against the euro. The pound fell versus all of its most-traded counterparts after Fitch Ratings said the U.K.’s fiscal task is “formidable.”

The yen rose 0.2 percent to 91.21 per dollar at 11:36 a.m. in New York, after gaining as much as 0.6 percent and losing as much as 0.6 percent, from 91.37 yesterday. It fell 0.3 percent to 109.25 per euro, after gaining as much as 0.6 percent, from 108.95. The euro rose 0.5 percent to $1.1982, from $1.1923. The pound weakened 0.5 percent to $1.4403.

The yen gained after the Standard and Poor’s 500 Index dropped as much as 0.8 percent before rising 0.3 percent The MSCI World Index was little changed after falling as much as 0.9 percent and rising as much as 0.3 percent.

Japan’s currency weakened earlier amid speculation that a new cabinet may favor a weak-yen policy. Yoshihiko Noda was named Japanese finance minister, bringing support for spending cuts as new Prime Minister Naoto Kan compiles a plan to rein in the world’s biggest public debt. Government spokesman Yoshito Sengoku announced the Cabinet today in Tokyo.

The dollar fell for the first time in four days against its developed-world counterparts, losing 0.5 percent, according to Bloomberg Correlation-Weighted Indexes, after Bernanke said that given the depth of the U.S. recession, the recovery is “moderate paced,” boosting demand for riskier assets.

Meanwhile,  the Royal Bank of Canada cut its forecasts for the euro against the dollar, citing potentially reduced demand for the currency from foreign central banks and slower growth as nations curb their budget deficits.

“The impact of the euro’s diminishing status as a reserve currency may have only just begun to play out,” Adam Cole, global head of currency strategy at RBC in London, wrote in an investor note dated yesterday.

RBC lowered its forecast for the euro to $1.18, from $1.26, for the end of the third quarter, and to $1.10, from $1.21, in one year.

The franc appreciated for an eighth day against the euro after Switzerland’ Federal Statistics Office said foreign- currency reserves jumped to 232.4 billion francs ($201 billion) in May from 153.6 billion in April.

The franc rose 0.4 percent to 1.3820 per euro, from 1.3869 yesterday. It touched 1.3746, a record high, then briefly erased its gains.