NCM2020 (28) - Nigerian FX Market Was Highly Variable in 2019

Proshare

Monday, February 17, 2020 / 06:00 AM / By Proshare Research/ Header Image Credit: EcoGraphics

 

The foreign exchange market in 2019 was highly variable as a result of domestic inflationary concerns and a gradual reduction in the size of the country's external reserves. The official foreign exchange rate window vacillated between N307/US$ in January 2019 to N305.68/US$ in February 2019 and N305.92/US$ at the end of June 2019. Between July and October 2019, the official rate hovered within a narrow trading band from a "support" of N305.80/US$ to a "resistance" of N306/US$. Buying pressures in Q4 saw a spike in rates to 306.90/US$ before calming in November to N305.78, January 2020 saw the rate spike again to N307/US$, the traditional "resistance" rate. The "trend" average rate for the official forex window in 2019 was N306.4/US$ (see chart ...below).

 

Chart...Nigeria's Naira to Dollar Official Market Exchange Rate 2019

Proshare Nigeria Pvt. Ltd.

Source: Trading Economics

 

FX Market Stats

 

A review of activities on the largest domestic exchange for fixed income and currency trading activities, the FMDQ, showed the following statistics between 2018 and 2019:


  • Total FX market turnover in January 2019 was US$14.91bn, representing a +35.36% (US$3.89bn) MoM increase from the turnover recorded in December 2018 ($11.01bn). The increase in FX turnover in January came from the 150.61% and 0.61% rise in Member-Clients and Inter-Member trades, which was only marginally offset by the -27.55% decrease in Member-CBN3 trades. Contrastingly, turnover at the Investors & Exporters (I&E) FX Window in January 2019 recorded -22.42% (US$1.11bn) and -26.86% (US$1.41bn) MoM and YoY decreases respectively to close at US$3.84bn from the US$4.95bn and US$5.25bn recorded in December and January 2018 respectively
  • Analysis of FX turnover by product type showed that FX Spot was the main driver of the overall increase in FX turnover, with an MoM increase of +462.93% (US$7.84bn). The increase in FX Spot resulted from FX inflow for investments in the higher-yielding FGN5 fixed income securities. Conversely, FX Derivatives recorded an MoM decrease of -42.34% (US$3.95bn), driven mainly by a -44.89% decline in Member-CBN FX Swaps turnover, while turnover in FX Futures also declined by -35.66%. In January, the 31st Naira-settled OTC FX Futures Contract (NGUS JAN 30, 2019) with total open contract of US$515.09m matured and was settled on FMDQ, while a new 12-month Futures contract (NGUS JAN 29, 2020) with a notional principal of US$1.00bn and futures price of US$/₦364.65 got listed on the OTC Exchange
  • In January 2019, the Nigerian Naira appreciated against the US Dollar at the I&E FX Window, gaining 97k to close the month at US$/₦363.03 (from US$/₦364.00 recorded in December 2018). However, relative to January 2018, the Naira has depreciated by ₦3.03 (US$/₦360.00 in January 2018). Similarly, the CBN Official Spot rate appreciated by 25k to close at $/₦306.75 (from US$/₦307.00 recorded in December in 2018). The US$/₦ rate at the Parallel market appreciated by ₦2.00 to close at US$/₦361.00 (from US$/₦363.00 recorded in December)

 

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