Naira-Dollar Analysis Today Despite Higher Forex Reserves

The naira remained under pressure across official and parallel markets despite continuing increase in Nigeria’s foreign exchange (forex) reserves.

The naira depreciated by 0.2 per cent at the official Investors and Exporters (I & E) Window and fell further by 0.5 per cent at the parallel market. Nigeria’s forex reserves, meanwhile, rose for the second consecutive week to close at $39.87 billion, an increase of $25.56 billion.

The naira depreciated N416.67 per dollar at the I & E Window as turnover on the official window declined by more than 20 per cent. At the parallel market, the naira declined to N577.00 per dollar, as large unmet demand continued to sustain wide gap between the official and parallel rates.

Most analysts said they expected the nation’s currency to remain under pressure despite the steep rise in crude oil price.

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Analysts at Cowry Asset Management said they expected “sustained pressure at the I & E FX Window as the markets react to strain in forex supply despite higher crude oil prices at the international market as production output remains low”.

Cordros Capital noted that while the Central Bank of Nigeria (CBN) has enough supply to support the forex market over the short term, the naira may depreciate further in the medium to long-term as the market adjusts to market realities.

According to analysts, foreign inflows, which have dwindled in recent period, are paramount for sustained forex liquidity over the medium term, “in line with expectation that accretion to the reserves will be weak given that crude oil production levels remain pretty low”.