Nigeria’s forex market struggles with scarce dollars

Nigeria’s forex market opened the week on a negative note having experienced a significant drop in turnover between Thursday, May 16 and Friday, May 17, 2024, recording a steep 69.4 percent decline.

The naira has been on a depreciation slide since mid-April when the Central Bank of Nigeria (CBN) opined it was not defending the naira amidst a sudden drop in exchange reserves.

At the current NAFEX rate of N1,501, the exchange rate has now depreciated by a whopping 40 per cent from N899.3 in December 2023.

Last week the forex turnover stood at $272.86 million, indicating a robust trading day with substantial market activity. However, this figure drastically fell to $83.5 million on Friday, highlighting a stark contrast in the volume of transactions within just a 24-hour period.

This was the lowest turnover rate since January 20, 2024.

This sharp decline in forex turnover underscores the volatility and unpredictability that currently characterize the forex market.

The trading dynamics further affirmed the erratic nature of the market. During intra-day trading, the exchange rate peaked at an intra-day high of N1,555/$1, highlighting a temporary surge in dollar sales.

Conversely, the intra-day low was N1,415/$1, reflecting periods of heightened buying pressure on the naira. 

The sharp movements within a single trading day suggest heightened uncertainty and instability, making it challenging for businesses and investors to plan their financial activities. 

Meanwhile, Nigeria’s foreign exchange (FX) reserves have increased by approximately $535 million over the past 28 days, as the official market continues to grapple with a scarcity of dollars.

The latest data from the Central Bank of Nigeria (CBN) reveals a steady upward trend in the reserves, showcasing the country’s resilience in maintaining its financial stability amidst challenging economic conditions.