The Nigerian official foreign exchange (FX) market witnessed a significant downturn in turnover, crashing by 42.92% on Monday, June 3, 2024.
It appears that traders and financial institutions took a cautious approach on the first trading day of the week and month. This cautious approach likely resulted in lower trading volumes as participants took time to evaluate market conditions before making significant moves.
This crash also coincides with the onset of a nationwide strike led by labour unions, likely suggesting the impact of industrial actions on the cautious approach taken by market participants.
Declining FX Turnover
According to data from FMDQ, FX turnover dropped from $213.52 million to $121.87 million, marking a sharp decline of 42.92%. This is the lowest FX turnover value in two weeks.
The drastic reduction underscores the reduced activity and liquidity in the market, reflecting the uncertainty and apprehension among market participants amid the ongoing strike.
Naira’s fluctuation against dollar
The naira experienced mixed fortunes against the US dollar during this period.
On Monday, the naira appreciated by 0.67%, closing at N1,476.12/$1, from N1,485.99/$1 recorded as the closing rate on Friday.
The naira struggled with high volatility in the previous month, losing about 5.6% of its value in May.
This was despite the effort of the Central Bank of Nigeria (CBN) to intervene in the market, selling more foreign exchange, which likely triggered a marginal three-day decline of about $65 million in Nigeria’s external reserves.
As the CBN sold more dollars on the official market, Nigeria’s foreign exchange reserves dropped briefly from $32.743 billion on May 23, 2024, to $32.678 billion on May 28, 2024.
What you should know
- Despite improved liquidity in May and the apex bank’s efforts to impose various restrictions on BDC activities, such as street trading, international outward transfers, and prohibition of the local currency’s presence on virtual P2P trading platforms, the naira has still been under tremendous pressure in the country’s fragile foreign exchange market.
- The fluctuating FX rates last month affirmed the uncertain market conditions and the challenges faced by the CBN in managing the country’s exchange rate.
- The significant drops and gains indicate heightened sensitivity to external economic pressures and internal policy measures.
- In an effort to boost more liquidity in the foreign exchange market, the apex bank permitted International Oil Companies (IOCs) to sell 50% of the balance of their repatriated export proceeds to authorized forex dealers. This move, among other reforms, may lead to a further boost in market liquidity this month.