Time: 2024-06-24
The official foreign exchange market in Nigeria has witnessed a significant increase in forex turnover, reaching $23.29 billion within a span of six months due to reforms implemented by the Central Bank of Nigeria. The naira traded against the United States dollar at rates ranging from N980 to N1,500 per dollar between January and June. Notably, the naira closed at N1,485 against the dollar at the end of trading activity on Friday.
Forex transactions in Nigeria are primarily conducted by commercial banks, the CBN, and international oil firms at the Nigerian Autonomous Foreign Exchange by Deposit Money Banks. In January, $4 billion worth of forex transactions were recorded, with a notable increase to $5.14 billion in February. However, the figure dropped to $2.5 billion in April before rising to $4.60 billion in May. The market also saw increased liquidity as $4.7 billion worth of transactions were sold in March.
In an effort to enhance liquidity in the FX market, the CBN implemented various policies, including unification of exchange rate windows, liberalization of the FX market, and clearance of FX backlog obligations. These reforms have contributed to the improved stability of the naira, which has been trading between N1,476 and N1,485 against the dollar. Governor of the CBN, Olayemi Cardoso, emphasized the importance of attracting inflows to maintain liquidity and stabilize the exchange rate.
Despite trading within the N1,500 range against the US dollar in the parallel market, the Nigerian naira has shown relative stability in the official market. Enhanced oil receipts and multilateral donor financing are expected to support the naira at the N1,500 level. Fitch Ratings projects the naira to end the year at N1,450 per dollar, reflecting a positive outlook for the currency.
The CBN's hawkish stance and aggressive interventions in the forex market have contributed to the naira's stability. Monetary tightening measures, market-based limitations, and increased interest rates have been implemented to attract dollar inflows and reduce volatility. External financial support from institutions like Afreximbank and the World Bank has further boosted foreign exchange liquidity in Nigeria.
The US Dollar Index (DXY) is on an upward trajectory, indicating potential gains for the third consecutive week. Traders are advised to monitor key resistance levels and support levels to navigate the market effectively. Despite challenges, the greenback's performance has been relatively stable, with support levels acting as barriers against significant drops in value.
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