In a surprising turn of events, the Nigerian naira has experienced a remarkable rally against the US dollar, sending shockwaves across various markets. This rally represents a significant setback for currency speculators who had bet against the Nigerian currency.
For the first time since August 2023, the exchange rate has fallen below the N900 to $1 mark on peer-to-peer (P2P) platforms, including Binance, signaling a robust recovery for the naira. Data from Binance Crypto trading platform indicated an exchange rate of N855 to $1 by 6:30 p.m. on a Friday.
Meanwhile, the black market, often used as an unofficial gauge of the currency’s strength, has quoted exchange rates ranging from N1000 to N1,100 for $1 in cash transactions. By late Friday, quotes were below N1000/$1, reflecting the naira’s impressive rebound.
p2p prices as of Friday evening on Binance.
The urgency displayed by speculators trying to exit their short positions underscores their anticipation of potential further gains for the naira. Many dollar holders expressed concern over their financial losses, with one speculator lamenting that they should have sold when the rate was at N1200/$1.
Several black market dealers suggested that the naira’s rally might be linked to recent positive news reports, particularly those highlighting the government’s progress in clearing forex backlogs. The market may be shifting from “panic buying” to “panic selling.”
On the official front, the Nigerian Autonomous Foreign Exchange Market (NAFEM) saw the naira closing at N776.14, its strongest finish since October 13th, a significant improvement from the previous day’s close of N793.2.
The factors behind the naira’s surge include increased forex inflows, CBN interventions, and measures against illegal financial activities. The CBN focused on Tier 2 Nigerian banks and international banks, with many clearing 75-80% of their forex forward contracts.
Wale Edun, the Minister of Finance, mentioned that FX liquidity is expected to improve in the coming weeks, with discussions underway with sovereign wealth funds willing to invest and provide advances.
JP Morgan projected that the naira would trade at N850/$ at the Investors’ and Exporters’ Forex window before the end of 2023. They anticipate that tighter policy, attractive rates, and FX levels could discourage dollarization and attract foreign capital.
In addition to these policy actions, JP Morgan suggested further measures, such as regulatory limits on FX net open positions for commercial banks and the introduction of a cash reserve ratio on FX deposits, as well as the issuance of dollar assets onshore.
The naira’s rally is seen as a considerable achievement and a source of significant financial losses for speculators who bet against it.
