The Naira strengthens as external reserves increase over the course of 3 week

The Naira witnessed a significant gain of 5.50 percent against the US Dollar, with the exchange rate falling to N801.10 on Wednesday, compared to the N847.77 quoted on the previous Tuesday. This positive development was observed at the Nigerian Autonomous Foreign Exchange Market (NAFEM), according to data from the FMDQ.

In the parallel market, commonly referred to as the black market, the Naira appreciated against the US Dollar for the first time in three weeks, increasing by 0.76 percent (N10) to N1,300 on Wednesday, as opposed to the N1,310 rate quoted on the preceding Tuesday.

This welcome development coincided with a 0.21 percent increase in external reserves over the past three weeks, primarily attributed to the rise in both oil production and prices. As of October 25, 2023, the price of Brent crude oil stood at $88.41, contributing to the improvement in external reserves.

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Data from the Central Bank of Nigeria (CBN) revealed that foreign reserves had grown to $33.29 billion as of October 24, 2023, compared to $33.22 billion at the beginning of the month on October 3, 2023. Experts suggested that this increase could be attributed to the upswing in oil prices and a surge in oil production.

According to Charlie Robertson, the head of Macro Strategy at FIM Partners UK Ltd, the boost in external reserves may be a result of the surge in oil revenue, including both an increase in crude oil prices and production. Furthermore, the influx of foreign loans into the Nigerian economy could also be a contributing factor to the expanding reserves.

In terms of market dynamics, the trends in the FX market remained consistent with the previous day. Local market participants were actively sourcing funds to settle their outstanding obligations, while offshore entities and the central bank remained on the sidelines. A report from Stanbic IBTC bank noted that the total trading volume increased by approximately $12.08 million to reach $100.18 million.

The indicative bids from most market players ranged between N730.00/$1 and N990.00/$1. The NAFEM closing rate settled at N801.10/$1, with the highest and lowest rates in the market recorded at N891.00 and N730.00, respectively. Additionally, the NAFEX fixing rate increased marginally by N5.99, rising from N792.02 the previous day to N798.01 per dollar.

These developments in the FX market reflect positive trends, with the Naira’s appreciation and increased external reserves contributing to greater stability and confidence in the Nigerian economy.