The Nigerian official foreign exchange (FX) market experienced a substantial downturn, with turnover plummeting by 42.92% on Monday, June 3, 2024.
It seems traders and financial institutions cautiously approached the first trading day of the week and month. This cautious stance likely reduced trading volumes as participants evaluated market conditions before making significant moves.
This decline coincided with the commencement of a nationwide strike led by labour unions, suggesting that the strike had an impact on market participants’ cautious approach.
Decrease in FX Turnover
Data from FMDQ reveals a sharp decline in FX turnover from $213.52 million to $121.87 million, marking a significant drop of 42.92%. This marks the lowest FX turnover in two weeks, highlighting decreased activity and liquidity in the market amid uncertainty and apprehension among participants due to the ongoing strike.
Naira’s Fluctuations Against the Dollar
The naira saw mixed fortunes against the US dollar during this period. On Monday, it appreciated by 0.67%, closing at N1,476.12/$1, compared to N1,485.99/$1 recorded on Friday.
Despite the Central Bank of Nigeria’s efforts to intervene by selling more foreign exchange, the naira struggled with high volatility, losing approximately 5.6% of its value in May. The CBN’s interventions triggered a marginal three-day decline of about $65 million in Nigeria’s external reserves, dropping briefly from $32.743 billion on May 23, 2024, to $32.678 billion on May 28, 2024.
Key Takeaways
Despite improved liquidity in May and various restrictions imposed by the apex bank on BDC activities, the naira remains under pressure in Nigeria’s fragile foreign exchange market. Fluctuating FX rates last month highlighted uncertain market conditions and challenges faced by the CBN in managing the exchange rate.
The significant fluctuations indicate heightened sensitivity to external economic pressures and internal policy measures. The apex bank allowed International Oil Companies (IOCs) to sell 50% of their repatriated export proceeds to authorized forex dealers to enhance liquidity. Such reforms may further boost market liquidity this month.
