The naira has continued its upward trajectory against the U.S. dollar, closing at N1,596.52/$1 on the Nigerian Autonomous Foreign Exchange Market (NAFEM) on Wednesday. This marks the third consecutive day of appreciation for the naira, signaling a potential shift in the country’s volatile foreign exchange landscape.
The naira’s appreciation is notable, especially as it closed below the N1,600/$1 mark for the second time this month. Data from the Foreign Exchange Market Quotations and Data (FMQD) highlights that the local currency has strengthened significantly this week, following a period of severe depreciation.
The week began with a modest 0.62% appreciation on Monday, where the naira traded at N1,607.15/$1. This was followed by a 0.38% increase on Tuesday, bringing the exchange rate to N1,601/$1. The momentum continued into Wednesday, with a further 0.28% rise, closing at N1,596.52/$1. This is the first time the naira has recorded three consecutive days of appreciation since May 2024.
Despite the overall positive trend, the naira experienced fluctuations within the official market, trading between a high of N1,628/$1 and a low of N1,520/$1. These fluctuations underscore the inherent volatility in Nigeria’s foreign exchange market.
The increase in the naira’s value coincided with a notable rise in forex turnover. After experiencing a decline to its second-lowest daily average turnover this year, forex turnover saw a significant recovery. On Wednesday, turnover rose by 51.73% to $93.92 million, up from $61.9 million the previous day. This rebound follows a decrease of 41.40% on Monday and 19.7% on Tuesday.
The Central Bank of Nigeria (CBN) played a crucial role in this recent market shift. Earlier in the day, the CBN conducted its latest Retail Dutch Auction, selling $876.26 million at N1,495/$1 to 26 qualified banks. This auction aimed to alleviate demand pressure in the forex market and promote effective price discovery.
In a statement, Dr. Omolara Omotunde Duke, Director of the Financial Markets Department at the CBN, disclosed that the auction was designed to manage market volatility and stabilize the naira’s value. “The auction was conducted to reduce demand pressure in the FX market and to promote accurate price discovery,” Duke stated.
The auction saw a total bid amount of $1.18 billion from 32 dealer banks, although bids from six banks were disqualified. Four banks missed the submission deadline, while two did not meet the bid requirements. The CBN ultimately supplied about 75% of the total bid amount.
The naira’s recent gains are occurring against a backdrop of waning protests and political unrest in Nigeria. Demonstrations over issues such as hunger and governance have reportedly subsided, potentially contributing to a more stable economic environment.
The continuous appreciation of the naira would come as a relief to many businesses and consumers who have been struggling with high exchange rates and inflation. However, the Nigerian economy still faces significant challenges, including inflationary pressures and infrastructural deficits that impact economic stability.
