By Aliyu Galadima
Exchange rate between the Naira and the Dollar fell to a six-month low of N1,625.88/$1 on the official NAFEM market on Wednesday, August 4, 2024.
This marks the lowest exchange rate since March 8, 2024, when it was recorded at N1627.4/$1.
According to the FMDQ data for the NAFEM window, the naira’s depreciation on August 4 represents a 0.89% decline from the previous day’s rate of N1,611.34/$1.
The Naira traded at a high of N1,640/$1 and a low of N1,400/$1, indicating significant volatility in the foreign exchange market.
The FX turnover for the day stood at $205.76 million, a marginal drop of 1.84% compared to the previous day’s $209.61 million.
The drop in exchange rates indicates a troubling trend for the Nigerian currency, which has been under continuous pressure.
This crash occurred amid a reported hike in petrol prices across the country, which may add to the plights of businesses and ordinary Nigerians, further worsening inflation.
The Nigerian official foreign exchange ,FX, market experienced a marked decline in turnover in August, despite the initial Retail Dutch Auction conducted by the Central Bank of Nigeria ,CBN.
Data obtained from the FMDQ by AljazirahNigeria reveals a significant reduction of $1.08 billion, with total turnover falling to $3.25 billion, from $4.34 billion recorded in July 2024.
This decline of 25% highlights the ongoing challenges faced by the official FX market in terms of liquidity and stability.
The consistent decline in FX turnover from July to August, alongside significant daily fluctuations, highlights the growing strain on the official market. The reduced turnover suggests a tightening of dollar liquidity, which could exert additional downward pressure on the Naira.
With the market grappling with these challenges, it may become increasingly difficult for the CBN to maintain the naira’s value, potentially leading to further depreciation if these conditions persist.
A report by Bloomberg in June 2024 noted that the naira emerged as the worst-performing currency in the world in the first half of 2024.
This was three days after Yemi Cardoso, the governor of the Central Bank of Nigeria ,CBN, said he is satisfied with how far the apex bank had been able to manage the currency crisis in the past few months.
Regarding whether the naira has reached its peak value or if further appreciation is expected, the CBN chief stated that it depends on “a host of different issues”, implying that the fiscal side plays a significant role in determining the value of the currency.
Cardoso, however, added that it is a work in progress as they will continue to implement certain macroeconomic fundamentals that will positively impact the market.
Demand pressure, insufficient dollar liquidity, and market volatility have hindered efforts by the CBN to strengthen the currency.
Besides the naira, Egypt’s pound and Ghana’s cedi were the world’s other worst performers in the first six months of the year.
Meanwhile, the haven currency posted mild losses in London’s trading session as renewed concerns over the U.S. economy’s growth outlook weakened its bullish run, while the naira oscillated near the N1650/$ support level.
The NGN/USD pair is hovering around its lowest level since March, despite increased bets on interest rate cuts in the world’s largest economy.
In the black market, the Nigerian naira lost N5 against the dollar, trading at N1,645/$1, down from N1,640/$1.
In the official window, the naira dropped even further against the US dollar on Wednesday, September 4, 2024. Data from the Nigerian Autonomous Foreign Exchange Market shows that the local currency traded at N1,625/$1, down from N1,611/$1 on Tuesday.
The central bank has increased its benchmark interest rate by 15.25 percentage points since 2022, reaching a record 26.75% in July, in an effort to stabilize the country’s FX market. The Monetary Policy Committee of Nigeria’s apex bank is set to convene on September 23 and 24.
The pressure on the local currency market has intensified due to increased demand from travelers and importers during the summer holidays.
Although the nation’s FX assets have grown, instability, depreciation, and a lack of dollar liquidity have further complicated the central bank’s efforts to strengthen the naira. The local currency was the world’s worst-performing currency in the first half of the year.
Expectations that the CBN would pause interest rate hikes this month were dashed by a 45% increase in gasoline prices and continued pressure on the Naira.
However, S&P Global claims that the Dangote Oil Refinery and Petrochemicals enterprise has the potential to drive economic growth in Nigeria, while simultaneously addressing the country’s foreign exchange challenges and easing pressure on the local currency.
The U.S. Dollar Index, which measures the greenback’s strength against a basket of six major currencies, ended its recovery streak on Wednesday following weak U.S. job openings data and a mixed outlook from the Federal Reserve’s Beige Book.
Overall, the U.S. economy continues to grow beyond expectations, but a softening labor market has led the market to expect a more dovish Fed.
Market forecasts for Fed easing remain unchanged, projecting a 100 basis-point cut by year’s end and a 200 basis-point cut over the next 12 months.
Global financial markets remain tense, with stocks suffering the most, as weaker-than-expected U.S. data has raised concerns that the country’s growth outlook may not be as optimistic as previously thought and that the labor market is slowing faster than anticipated. U.S. job vacancies fell to a 3.5-year low in July.
The data suggests the labor market is losing momentum, following Tuesday’s ISM manufacturing survey, which remained in the contraction zone.
In a note, Wells Fargo economists stated, “Job openings data for July showed few signs of the ongoing cooling in the labor market coming to an end. For the Fed, (the) data reaffirms that the labor market is no longer a source of inflationary pressure on the U.S. economy”.
Investors have placed increasing importance on such data, given the Federal Reserve’s focus on the strength of the U.S. labor market.
On Thursday, the U.S. dollar regained some of the losses from the previous session, as traders raised their bets on an aggressive Fed easing cycle expected to begin this month.
