FX market seen stable on the CBN’s continuous intervention

This week, the market would trade stable on the back of CBN continued weekly FX intervention sales. Despite the onset of the holiday season with an appreciable rise in demand, the CBN efforts would stabilise rates against the major world currencies, especially the U.S. dollar.

More so, accretion in the nations foreign reserves would give the CBN enough capacity to forestall and withstand rising speculative purchases. Already the CBN has urged Nigerians not to panic that it has enough dollar to meet demand.

Last week, the CBN intervened twice, reflating the market with a total of $310 million. It offered $210.0 million on Wednesday, 23rd May 2018 and on Friday with $100 million in a bid to sustain liquidity levels and maintain stability in all segments of the market.

This was in addition to weekly auctions at the SME and Retail Invisible segment of the market. Despite this intervention, continued pressures from the sell-offs of sovereign bonds holding offshore investors further led to pressures on exchange rate as well as the external reserves, which marginally declined to US$47.8 by Thursday.

The CBN’ssSpot rate opened the week at N305.35/$1.00, unchanged from the close of the previous week, but declined on Tuesday to N305.40/US$1.00 – a depreciation of 5 kobo – and remained at that level till the close of the week.

Similarly, the naira remained flat at the parallel market trading at N364.00/US$1.00 for the first three trading sessions in the week before losing N1 on Thursday and Friday respectively to close the week at N366/$1.00.

At the Investors’ & Exporters’ (I&E) FX Window, the NAFEX rate opened the week at N361.46/$1.00, depreciating by 28 kobo from the previous close of N361.18/US$1.00.

However, by midweek, it appreciated to N361.25/$1.00 but reversed to close the week at a 2-week’s low of N361.64/$1.00 by Friday. Also, the activity level in the I&E Window waned this week as total turnover declined by 21.7% to US$883.9m (on Thursday) from $1.0 billion recorded in the same period of the previous week.

In the FMDQ OTC futures market, the total value of open contracts of the naira settled OTC futures increased by $258.4 million to $4.0 billion relatives to $3.7 billion recorded the previous Friday; implying a 7.0 percent increase in market size.

The APRIL 2019 instrument (contract price: N362.44/US$1.00) was the most subscribed with a total value of US$60.0m while MAY 2018, JUNE 2018, JULY 2018 and AUGUST 2018 instruments were flat w-o-w. The MAY 2018 instrument, which has a subscription value of US$503.1m, will mature this week Wednesday and in line with the trend, analysts and traders expect it to be replaced by the CBN.

“This week, we anticipate much more frequent interventions by the CBN as it sustains efforts to maintain stability in the FX market. Hence, we expect rates will trade at similar levels across segments,” analysts at Afrinvest Research said.