The naira made a significant recovery on September 6, 2024, after three days of consecutive declines in the official market.
The currency, which had been experiencing a turbulent week, rebounded to close at N1,593.32/$1, marking a 2.89% appreciation.
This brought the currency back below the critical N1,600/$1 threshold, offering a sense of relief to the local currency market.
The recovery followed a period of volatility, with the naira depreciating sharply in the days prior.
Traders and market analysts have pointed to several key factors behind the naira’s rebound, including an increase in forex turnover, the settlement of a $500 million domestic dollar bond, and an announcement by the Central Bank of Nigeria (CBN) regarding dollar sales to Bureau De Change (BDC) operators.
The naira’s recovery on September 6 came after three consecutive days of losses in the official market.
The local currency began its decline on September 3, depreciating by 1.59% to close at N1,611.34/$1.
This was followed by further weakening on September 4 and 5, with the naira closing at N1,625.88/$1 and N1,639.41/$1, respectively.
By the end of the week, the naira had hit a seven-month low, trading as high as N1,665/$1 at one point during the day.
The foreign exchange market saw significant fluctuations, reflecting the ongoing pressure on the naira due to high demand for foreign currency and limited dollar supply.
On September 6, however, the naira reversed its downward trend, with the official closing rate at N1,593.32/$1.
The improvement in the naira’s value provided some optimism in a week marked by instability.
Several key developments contributed to the naira’s recovery on September 6.
One of the most notable factors was the settlement of a $500 million domestic dollar bond, which had been issued by the Federal Government of Nigeria for subscription on August 19, 2024.
The bond, which carries a 9.75% per annum interest rate, is a five-year investment aimed at boosting the country’s external reserves and stabilizing the foreign exchange market.
The settlement of this bond on September 6 helped to inject much-needed dollar liquidity into the market, supporting the naira’s recovery. Investors had been able to purchase the bond in units of $1,000, with a minimum subscription of $10,000.
The bond is expected to strengthen Nigeria’s financial position by increasing dollar inflows, which are crucial for stabilizing the naira amid ongoing currency volatility.
In addition to the bond settlement, the CBN played a critical role in supporting the naira by approving the sale of $20,000 each to licensed BDC operators.
This move was designed to increase the supply of dollars in the market, allowing BDCs to meet the high demand for foreign currency among Nigerian businesses and individuals.
The CBN instructed BDCs to sell the dollars at a margin of no more than 1% above the purchase rate of N1,580/$1, which also contributed to stabilizing the market.
Another key factor in the naira’s recovery was the surge in forex turnover on the Nigerian Autonomous Foreign Exchange Market (NAFEM).
On September 6, forex turnover jumped by 31.96%, reaching $245.17 million, up from $185.79 million on September 5.
This increase in dollar supply helped to alleviate some of the pressure on the naira, with improved liquidity cited by traders as a crucial factor in driving demand for the local currency.
The sharp rise in forex turnover came after a highly volatile week, with daily turnover fluctuating significantly.
On September 2, forex turnover had dropped to just $71.18 million, representing a 58.81% decrease compared to the previous day.
However, by September 3, turnover had surged by 194.48% to reach $209.61 million as traders sought to capitalize on the naira’s depreciation.
Despite the recovery on September 6, the volatility in forex turnover highlights the ongoing uncertainty in Nigeria’s foreign exchange market.
The fluctuations in turnover—ranging from as low as $71 million to as high as $245 million within a single week—underscore the challenges facing the country as it tries to stabilize its currency.
