FX Market Closes August On a Downward Trend As Naira Continues To Weaken

Naira Struggles in FX Market at Month-End

The foreign exchange (FX) market witnessed a challenging end to August, with the naira recording significant losses against the dollar across various trading platforms.

The Nigerian Autonomous Foreign Exchange Market (NAFEM) saw the naira close the month at N1,598.56 per dollar, marking a 1.79 percent depreciation from the N1,570/$1 rate recorded at the beginning of the month.

FX Market Trends in August

Data from the FMDQ Securities Exchange Limited revealed a substantial increase in dollar transactions, with willing buyers and sellers trading a total of $172.80 million on the last trading day of August 2024.

This represents a 21.42 percent rise from the $142.32 million traded at the start of the month. Despite this increased activity, the naira could not maintain its value, losing N28.56 by the month’s end.

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In the parallel market, commonly known as the black market, the naira faced even steeper declines. The dollar was quoted at N1,640 on the last Friday of August, a N25 drop from the N1,615 rate seen at the start of the month.

On a day-to-day basis, the naira fell by N10 on the final day of trading, closing at N1,640 per dollar compared to N1,630 on the previous day.

CBN’s Role in the FX Market

Amid these fluctuations, the Central Bank of Nigeria (CBN) took steps to stabilize the FX market. During August, the CBN resumed retail dollar sales through its retail Dutch auction system, selling over $1.7 billion in two auction days.

The bank also reported a significant increase in remittance inflows, with $553 million recorded in July 2024.

This represents a 130 percent increase compared to the same period in 2023, marking the highest monthly total on record.

“The increase in remittances is a strong testament to the success of the CBN’s ongoing efforts to bolster public confidence in the foreign exchange market, strengthen a robust and inclusive banking system, and promote price stability, which is essential for sustained economic growth,” said Hakama Sidi Ali, CBN’s acting director of corporate communications.

Challenges and Outlook

While the CBN’s efforts have shown some positive results, the FX market’s overall performance in August highlights ongoing challenges.

The naira’s depreciation reflects broader economic pressures and market uncertainty, despite the increased dollar supply and remittance inflows.

Moving forward, the stability of the naira in the FX market will likely depend on the continued effectiveness of CBN’s policies, including its measures to enhance liquidity and transparency.

As Nigeria navigates these economic challenges, the role of remittances and other foreign exchange sources will remain crucial in supporting the nation’s financial stability.

In conclusion, while August was a tough month for the naira in the FX market, ongoing efforts by the CBN to stabilize the currency and boost public confidence could pave the way for a more resilient market in the months ahead.