Naira trades low at parallel market, hits N1202/$1 at P2P market

The naira sold at around N1,202 against the greenback on the P2P (Peer to Peer) market on Tuesday, while the official market remained closed to public holidays.

The chronic dollar shortages on the official market have prompted the naira’s official exchange rate to drift towards the parallel market level. The local currency exchanged to the dollar at a lower price at the physical market N1,233/$.

The Nigerian currency has been volatile since the Nigerian government eased currency controls in June, which had kept the currency artificially high.

The FG has pledged to boost supply, but the FX liquidity crunch in Africa’s largest economy persists.

The dollar index, hitting its lowest point in the last 5 months, further intensified its decline as the European Central Bank and the Bank of England provided more hesitant signals regarding interest rate cuts.

Weak global growth might be the catalyst for the dollar to find support at current levels in the first quarter of 2024, even though the current view indicates that sellers against major currencies may continue to pressure the greenback until the end of the year.

However, in the current situation, while markets highlight that the expectation for a rate cut in March has reached 80 per cent, this expectation continues to keep the dollar under pressure.

The technical outlook shows the naira still has some time as the U.S. index support does not look solid. The downward trend of the short-term EMA values and the negative outlook of the Stochastic RSI despite Friday’s buy signal that the DXY may fall as low as 101 index points.

On the other hand, the 103 index points band has become critical due to the falling channel movement in a possible recovery move last week.

Following such a recovery, the U.S. dollar index might make another move in the direction of 101 support, though the naira’s ammunition remains weak amid weak FX inflows.

The market is now more confident that the Fed will cut interest rates in March of next year after data released on Friday revealed that U.S. prices decreased in November from the previous month for the first time in more than three and a half years and that the annual increase in inflation dropped below 3 per cent.

The reading came one week after Fed policymakers, during the central bank’s last policy meeting of the year, hinted at the possibility of rate reduction in 2024, a move that depreciated the value of the dollar.

Markets indicate that the Fed has made considerable progress on inflation, as the core started the year closer to an annual rate of 5 per cent, though the job is not yet done in ensuring inflation is on a sustained trajectory toward its 2 per cent target.