Naira Strengthens Across FX Markets as Reserves Hit $41.2bn, Investors Bet Big on Nigeria
- The Nigerian currency has continued to appreciate in the official and parallel markets
- Investor appetite for OMO auctions has fueled significant naira gains amid forex reserves gains
- Details from the Central Bank of Nigeria (CBN) showed that the nation’s FX reserves gained $161 million weekly
Legit.ng’s Pascal Oparada has reported on tech, energy, stocks, investment and the economy for over a decade.
The Nigerian currency, the naira, appreciated in all forex markets following continued accretion in external reserves.
Investors' confidence was bolstered as the nation’s external reserves gained $1.7 billion in August, according to the latest data from the Central Bank of Nigeria (CBN).
Source: Getty Images
FX reserves growth spurs confidence
The CBN data showed that the external reserves rose to $41.27 billion in the review period, as Olayemi Cardoso, CBN governor, said foreign remittances averaged $600 million in August.
According to a report by Market Forces Africa, a rising number of forex users with foreign currencies that took an offsetting position at the forward market saw the local currency appreciate across contracts last week
The naira gained across the 1-month, 3-month, 6-month and one-year contracts, analysts at Cordros Capital said.
Naira appreciates across FX contracts
The forward FX contract for one month rose by 0.3% to N1,572.95 per dollar.
The investment company also said three three-month forward FX contracts appreciated by 0.6% to close at N1,674.11 per dollar, showing a positive expectation on the naira’s strength in the short term.
Details also showed that the six-month FX forward contract rate appreciated by one per cent at N1,745.85, while the one-year contract strengthened by 1.4% to N1,948.07 per dollar.
Source: Getty Images
According to experts, forex market players and some contract holders take an offsetting position in a currency pair to hedge against potential losses from adverse movements in FX rates.
Analysts bet big on the naira
They say that the naira is expected to remain strong, driven by robust dollar liquidity at the official window and an efficient FX market.
“We expect sustained inflows from foreign portfolio investors (FPIs) due to existing carry trade opportunities and stronger market confidence,” one analyst said.
Also, improving non-oil exports and limited incentives for naira speculations are expected to reinforce steady inflows from domestic sources.
Investors hedged against losses
The naira gained in the official market on the week to close at N1,531 per dollar, as demand pressure was reduced by the apex bank’s FX intervention sales to banks and fresh dollar supply from foreign portfolio investors (FPIs) seeking to participate in OMO auctions.
According to reports, in one week, the CBN sold $170 million to banks to boost the supply side.
Meanwhile, checks showed that forex reserves rose for eight consecutive weeks, rising by $161.06 million weekly to $1.27 billion.
Naira strengthens as FX reserves hit $41.2bn
Legit.ng earlier reported that the Nigerian currency, the naira, appreciated slightly to N1,537 per dollar.
The naira strengthened marginally to N1537 per dollar at the foreign exchange market amidst sustained accretion into Nigeria’s foreign reserves.
Data from the Central Bank of Nigeria (CBN) shows that the local currency rebounded from the previous day’s loss caused by increased demand for the US greenback.
Source: Legit.ng
