Traders said that the Nigerian Naira exchange rate against the US dollar fell by almost 500 on the unapproved open retail market due to a US dollar shortage on Friday as retail currency operators set their US dollar purchase offer at 399.
Nigeria’s one-year currency forward exchange rate fell the most in more than a decade on Monday as the Central Bank of Nigeria adjusted the official Naira exchange rate and the country recorded the first death due to a corona virus outbreak.
Naira’s reliance on oil revenues (about 90% of foreign exchange earnings) has depreciated relative to emerging market currencies such as the US dollar. This development took place after a price war between Russia and Saudi Arabia over reduced oil production and poor demand in key markets such as China and India.
The Central Bank of Nigeria set the Naira to the US dollar at N360 on Monday, lower than its previous fixed exchange rate of N306, while the exchange rate on the interbank market rose from the previous N360 to N380.
Apex Bank President Godwin Emefiele said last week that the sudden drop in the Naira exchange rate was a price adjustment, not a depreciation.
A forward market is an OTC market that determines the price of a financial instrument or asset for future delivery. The forward market is used to trade various instruments, especially in the foreign exchange market.
Naira’s one-year forward price has fallen by about 11.3%, which indicates where the currency can be traded after one year.
Standard Chartered Bank
The non-deliverable forward market in London has set the price of Naira at N515 to US $ 1 in one year, while the price of Naira futures contracts of the same duration is N385.
Naira’s first nine-month futures also fell by more than 11%, while the maturity date was shortened by at least 5%.
The forward market spread between one-year Naira forward contracts and futures has widened from 30 naira in January to 130 naira on Monday as investors compete for hedging risks.
The one-year Naira futures contract offered by the Central Bank was revised upward by 15 Naira on Monday.
The impact of the plunge in oil prices over the weekend has spread to various asset classes in Nigeria, causing investors to widen the spread in the bond market, sell stocks and weaken the Naira currency.
With the support of President Muhammadu Buhari, Godwin Emefiele, who backs strong currencies, has been consuming his $ 35.98 billion reserve as of March 20, 2020 to support Nai Pull, currently down 16% from a year ago.
In the stock market, the main index fell to 21,700 on Monday, the highest level in July 2012, after the most liquid banking stocks on the exchange fell 9%.
Naira lost one-third of its official value against the U.S. dollar in 2016 after the bank lifted its peg to the dollar to ease the dollar shortage. In an unapproved public market, Naira is about 40% lower than the official exchange rate.
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