Lagos, Nigeria – In a surprising turn of events, the Nigerian Naira has made significant gains against the US Dollar in the foreign exchange (FX) market this week, closing on a strong note across various market segments.
During day-to-day trading, the Naira appreciated by an impressive 5.68 percent, with the US Dollar exchange rate falling to N789.94 on Friday, as reported by FMDQ. Just the day before, the Dollar was valued at N837.49 at the Nigerian Autonomous Foreign Exchange Market (NAFEM).
- Dollar to Naira Exchange Rate Today October 28, 2023 [CBN, I&E and Bank]
- Dollar to Naira black market exchange rate today October 28, 2023
This remarkable strengthening of the Naira can be attributed to substantial dollar flows, with willing buyers and sellers actively participating in the FX market. Consequently, the daily foreign exchange market turnover, which reflects transaction volume, surged by an astonishing 129.50 percent to $259.84 million on Friday, compared to $113.22 million on Thursday.
Dollar Speculators Count Losses as Naira Gains Ground on Black Market
In a week-to-date comparison, the flow of dollars saw a dramatic increase to $259.84 million on Friday from $81.55 million recorded on Monday, October 23, 2023. This represents an extraordinary 218.62 percent surge.
The local currency experienced an 8.39 percent appreciation against the US Dollar, with the exchange rate dropping to N1,200 on Friday, down from N1,310 per Dollar on Thursday in the parallel market, often referred to as the black market.
For the entire week, the Naira strengthened by 0.83 percent, concluding the trading week with the Dollar trading at N1,200, compared to the week’s starting rate of N1,210 per Dollar.
These gains mark a remarkable shift from the lowest point within the week, where the Naira was valued at N310 per Dollar, to ending the week at N200 per Dollar on the black market.
The increase in foreign exchange liquidity and the strengthening Naira are seen as positive developments in the market. However, Nigeria’s foreign exchange reserves have been steadily declining, and the demand for foreign currency remains high. Limited access to FX in the official market has encouraged market participants to seek FX in the black market.
Nigeria’s foreign exchange reserves have decreased by $3.8 billion, roughly 10.2 percent, in recent months, reaching $33.31 billion. This is the lowest level since July 2021 when reserves hit $33.09 billion. The decline in reserves, coupled with FX liquidity constraints, has weakened investor confidence and reduced offshore community appetite for the Naira, according to analysts at Cowry Asset Management Limited.
The steady decline in official reserves, along with FX liquidity constraints, has resulted in a loss of investor confidence and a general reluctance among the offshore community to engage in the market.
Nigeria’s inability to fully benefit from the global oil market’s surge, following geopolitical unrest in Eastern Europe since February 2022, has taken a toll on the economy. The lack of dollar liquidity within the central bank’s vault has prompted the central bank to rely on reserves to defend the Naira in the foreign exchange market. Market analysts are closely monitoring these developments, and the central bank’s actions are expected to play a crucial role in the stability of the Naira in the coming weeks.
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