FX turnover down by 26.5% in one week as dollar remains upbeat

FMDQ Securities Exchange’s total turnover in the Foreign Exchange (FX) Spot and Derivatives markets stood at $472.49 million last week. The figure represents a fall of 26.52 per cent ($170.57 million) from $643.06 million reported the previous week, indicating the growing illiquidity in the market.

At the parallel and peer-to-peer markets, naira continues to face enormous pressure, trading above N1000 against the dollar at the weekend. Experts said the confirmation and full resumption of the new leadership team of the Central Bank of Nigeria (CBN) could trigger fresh confidence-building, which is required to stem speculative trading, in the coming days.

The market, which has been cooling around slightly above N1000/$ in the past week, is expected to resume tomorrow with new rates. The naira also depreciated by one per cent to N755.27/dollar at the Investors and Exporters Window (IEW) last week with total turnover at the window falling by 46.4 per cent to $344.67 million. Trades were sealed within the N590 – NGN851/$ band.

Also, in the forwards market, naira recorded depreciation on one-month (-1.2 per cent to N791.13/dollar), three-month (-one per cent to N803.09/dollar), six-month (-0.7 per cent to N820.86/dollar) and 1-year (-one per cent to N876.74/dollar) contracts.

According to analysts at Cordros Securities, the narratives in the FX market have remained the same in recent weeks, following a slowdown in FX reforms.

“Hence, barring any significant positive developments, we expect the lingering low crude oil production and a sustained dip in foreign investors’ net flows to weigh on FX supply in the short term.

“Consequently, we expect FX liquidity constraints to linger in the near term, ensuring the local currency pressures remain intact,” it added. Nigeria’s foreign reserves declined by $34.25 million week-on-week (w/w) to $33.24 billion last week – the lowest level since July 2021 raising concern about the market outlook.

According to the FMDQ, the week-on-week (w/w) decrease in total turnover was jointly driven by the 26.38 per cent ($167.56 million) and 37.96 per cent ($3.01 million) fall in FX Spot and FX Derivatives turnover, respectively.

The exchange said the w/w decrease in FX derivatives turnover was solely driven by the 37.96 per cent ($3.01 million) decrease in FX Forwards turnover, whilst there was no activity in both Exchange-Traded FX Futures and Naira-Settled OTC FX Futures markets.

In the FX Spot market, the total value of transactions for the week ending on September 29, was $467.57 million, representing a decrease of 26.38 per cent ($167.56 million) from the value of transactions executed the previous week ($635.13 million).

It added that there were no trades executed in the Exchange-Traded FX Futures and extant Naira-Settled OTC FX Futures markets for the week ending on September 29.

For the week ending on September 29, the average Nigerian Autonomous Foreign Exchange (NAFEX) rate was $/₦774.01, compared to $/₦771.14 recorded in the previous week. That puts the depreciation of naira against the dollar at 0.33 per cent ($/₦2.54).

Meanwhile, proceedings in the bond secondary market traded the week mainly on a calm note but turned bullish at the end of the week as the average yield contracted by three basis points (bps) w/w.

Across the benchmark curve, the average yield contracted at the short (-19bps) and long (-2bps) ends following buying interest in the MAR-2024 (-86bps) and APR-2037 (-9bps) bonds, respectively.

The average yield expanded at the mid (+7bps) segment as market participants took profits off the APR-2032 (+8bps) bond.Analysts at Cordros Securities said: “Over the medium term, we expect yields in the FG bond secondary market to remain elevated, driven by the sustained imbalance in the demand and supply curve. However, we highlight that deliberate actions by the DMO to keep borrowing costs moderate remain a downside factor.”