The Nigerian official foreign exchange (FX) market experienced a marked decline in turnover in August, despite the initial Retail Dutch Auction conducted by the Central Bank of Nigeria (CBN).
Data obtained from the FMDQ by Nairalytics, the research arm of Nairametrics, reveals a significant reduction of $1.08 billion, with total turnover falling to $3.25 billion, from $4.34 billion recorded in July 2024.
This decline of 25% highlights the ongoing challenges faced by the official FX market in terms of liquidity and stability.
What the data says
The average daily FX turnover decreased from $189.42 million in July to $144.71 million in August, reflecting a 23.61% reduction. This decline suggests a significant drop in market activity, indicating increasing difficulties in accessing foreign currency.
The lowest FX turnover in August ($61.9 million) was 42.74% lower than the lowest turnover in July ($108.16 million). This sharp decline indicates a more constrained market in August, where liquidity challenges were more pronounced.
While July witnessed its highest turnover at $348.82 million on July 11, August’s peak was slightly lower at $323.11 million on August 9.
The consistent decline in FX turnover from July to August, alongside significant daily fluctuations, underscores the growing strain on the official market. The reduced turnover suggests a tightening of dollar liquidity, which could exert additional downward pressure on the Naira.
With the market grappling with these challenges, it may become increasingly difficult for the Central Bank of Nigeria (CBN) to maintain the naira’s value, potentially leading to further depreciation if these conditions persist.
Naira crashed by 1.79% against the dollar
In the period under review, the naira crashed by 1.76% against the dollar on the official NAFEM market.
The local currency moved from N1,570/$1 at the start of the month, to N1,598.56/$1 on the official market on August 30, 2024.
However, this depreciation is mild compared to the 6.43% recorded in the previous month.
Despite the mild decline, the data suggests a market under pressure, with the naira consistently depreciating against the dollar, reflecting underlying economic challenges, possibly including demand-supply imbalances in the foreign exchange market.
The naira was strongest at N1543.84/$1 on August 21, while the lowest point for the naira was N1,617.08/$1 on August 2.
The naira averaged around N1,586 in August, which is about 1.6% higher than the July average of N1,561, and this may indicate that the currency was more stable in July than in August.
August 2024 saw increased volatility, with the naira’s value consistently pressured downward. This decline was exacerbated by lower FX turnover and greater market uncertainty.
What you should know
In the first week of August, the Central Bank of Nigeria (CBN) sold $876.26 million at N1,495/$1 to 26 qualified banks in its latest Retail Dutch Auction.
According to a statement from the CBN, a total bid of $1.18 billion was received from 32 dealer banks. However, bids from six banks were disqualified, as four banks did not meet up with the deadline while two did not provide bids in their submitted templates.
Nairametrics earlier reported that the forex turnover on the FMDQ, where the exchange rate trades officially, closed at a turnover of just $61.9 million on August 6, 2024, the lowest since January 2024.
This was also the second-lowest daily average turnover this year, second only to the $59.6 million recorded on January 8, 2024, which is the lowest this year.
Market operators, including Bureau De Change (BDC) operators, have voiced concerns over the CBN’s inconsistent dollar supply, which they argue is hampering efforts to stabilize the naira.
As the CBN grapples with the challenges of managing dollar supply, the market remains vulnerable to further depreciation, especially if forex turnover continues to fall.
The outlook for the naira remains uncertain, with businesses and market operators alike bracing for potential further devaluation in the months ahead.
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