The Naira faced more headwinds in the unofficial market amid high demand for the dollar and a widening supply gap.
The Nigerian currency was trading as low as N1750/$ during the midweek trading session on the black market in the country’s business capital, driven by strong demand for the safe-haven currency.
Data from the FMDQ Exchange’s official trading platform show that the value of the Naira increased by N11.4/$, from the N1,690/$ it was trading at on Monday.
Nigeria’s FX market liquidity dropped as Tuesday’s total daily turnover fell from $173.14 million to $128.59 million.
Despite recent interest rate cuts by the world’s largest economy, the Nigerian Naira still faces high selling pressure in the country’s fragile foreign exchange market. Price action indicates that short sellers are firmly in control of the N1,700 support line in the unofficial market.
The Naira performed poorly across the board, even as the CBN’s foreign exchange reserves reached multi-month highs. The CBN’s reserves hit $40 billion, the highest amount in 32 months.
The Nigerian currency has fallen 70% since the middle of last year, while the US Dollar index has shown strength. The Naira is likely to face more selling pressure as demand for foreign exchange rises, driven mainly by foreign tuition, fuel imports, Christmas vacations, and savers seeking to hedge against the Naira.
Persistent issues like weak oil production, high inflation, tighter monetary policies, and low foreign direct investment have also hurt Nigeria’s foreign exchange market.
This pessimistic outlook is forcing businesses with dollar-denominated debt to reduce it if they can, even though borrowing costs in Naira are significantly higher.
This counteracts President Bola Tinubu’s intention to attract more foreign investment to Nigeria by loosening currency controls last year.
MTN Nigeria recently announced it had successfully raised N75.18 billion in Series 11 and 12 Commercial Paper (CP) issuances under its N250 billion CP issuance program.
The CBN allowed the Naira to float more freely after years of being held at an artificially strong level against the dollar. While international observers welcomed the reforms, Nigeria’s inflation spiked to a three-decade high, contributing to a cost-of-living crisis.
