In August, Nigeria’s official foreign exchange (FX) market faced a decrease in trading, even though the Central Bank of Nigeria (CBN) held a Retail Dutch Auction.
According to Nairalytics, the research arm of Newslodge, the total FX turnover fell from $4.34 billion in July 2024 to $3.25 billion in August. This is a drop of $1.08 billion or 25%, showing that the FX market is having problems with both liquidity and stability.
What the data says
On average, the daily FX turnover went down from $189.42 million in July to $144.71 million in August. This 23.61% reduction means less trading was happening, which shows more trouble in getting foreign currency.
In August, the lowest FX turnover was $61.9 million, which is 42.74% less than the lowest turnover in July, $108.16 million. This sharp decline indicates that the market was more constrained in August, with more liquidity challenges.
July’s highest turnover was $348.82 million on July 11, while August’s peak was $323.11 million on August 9.
The ongoing drop in FX turnover from July to August, along with daily fluctuations, highlights the growing strain in the official market. The lower turnover suggests a tightening of dollar availability, which could further weaken the Naira.
Due to these challenges, it may become tough for the CBN to maintain the Naira’s value, potentially leading to more depreciation if these conditions continue.
Naira crashed by 1.79% against the dollar
In the period under review, the Naira decreased by 1.76% against the dollar on the official NAFEM market.
The local currency went from N1,570/$1 at the start of the month to N1,598.56/$1 on August 30, 2024, on the official market. However, this decline is milder compared to the 6.43% recorded in the previous month.
Despite the mild fall, the data still shows a market facing pressure, with the Naira consistently losing value against the dollar. This reflects underlying economic issues, possibly including imbalances between supply and demand in the foreign exchange market.
On August 21, the Naira was strongest at N1,543.84/$1, while the lowest point for the Naira was N1,617.08/$1 on August 2.
The Naira averaged around N1,586 in August, about 1.6% higher than the July average of N1,561, indicating more stability in July compared to August.
August 2024 saw increased volatility, with the Naira facing consistent downward pressure due to lower FX turnover and greater market uncertainty.
What you should know
In the first week of August, the CBN sold $876.26 million at N1,495/$1 to 26 qualified banks in its latest Retail Dutch Auction.
According to a CBN statement, a total bid of $1.18 billion was received from 32 dealer banks. However, bids from six banks were disqualified because four banks missed the deadline, and two did not provide bids in their submitted templates.
Newslodge 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 raised concerns about the CBN’s inconsistent dollar supply, which they argue is hampering efforts to stabilize the Naira.
As the CBN struggles with 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 preparing for potential further devaluation in the coming months.