Demand
for foreign exchange is gradually edging up, as the Central Bank of
Nigeria (CBN) offered $1.3 billion so far this month at the official
Wholesale Dutch Auction System (WDAS) window.
Even
though there are five more auctions for the month of March, the amount
so far traded exceeds the average traded figure since the beginning of
the year.
A
total of $2.25 billion was traded in January while $1.7 billion was
traded in February. In January, an average of $281 million was traded
per session while $242 million was traded in February. For March, an
average of $325 million has been the figure so far, even though it is
still the middle of the month. This represents an increase of over 34
per cent from the previous month.
Upsurge
The
upsurge in foreign exchange demand comes amidst mixed expectations from
operators on the direction of the market this week. Analysts at FSDH
Securities Limited, a financial advisory and investment firm, stated
that there would not be much pressure on that window of the financial
market.
“We
are of the opinion that the current fiscal position of the Federal
Government should not exert excessive demand pressure on the foreign
exchange. Thus, we expect the foreign exchange rate to remain stable in
the short to medium term,” the firm stated in its report for last week.
However,
the naira has continued to face undue pressure due to market forces.
While the national currency closed last week at N150.79 to the dollar,
it declined to N150.90 at Monday’s trading, a drop of 0.07 per cent.
The naira sold N155.50 at the parallel market, a decline of 0.71 per
cent from the previous trading.
This
development, according to Afrinvest, a Lagos-based financial services
firm, is due to the sustained level of demand for the dollar and
reduced inflows from oil majors.
“We
expect further downward pressure on the naira this week as we do not
foresee any significant increase in supply by the CBN,” the firm
reported.
Speculative activities
Currency dealers, however, blame the activities of speculators for the current dip in the value of the naira.
According
to Suleman Gali, a bureau de change operator in Marina, even the banks
are increasing their rates due to the pressure to sell to currency
speculators.
“We
were selling at N157 to the dollar only for my bank to send me a mail
this morning (yesterday) increasing their selling price to N157.50.
Automatically, we also had to increase,” Mr. Gali said.
He
said the Central Bank would need to monitor the banks to ensure that
they respect the two per cent band, which is the official rate approved
by the regulator between buying and selling.
“Since
last week, the banks have been increasing their rate. So, instead of
selling direct to us, they prefer to sell internally to people who are
ready to pay more,” he added.
Attractive entry point
Samir
Gadio, Emerging Markets Strategist, Standard Bank, said the current
weakness of the naira represents an attractive entry point for
investors ready to position for a post-electoral rally in the foreign
exchange market in April 2011.
“Dollar
to naira has traded above the +3 per cent upper end of the Central Bank
exchange rate objective (156.2 on 15 March), probably driven by the
usual uncertainty associated with any electoral cycle in African
countries and rising corporate and speculative demand at the WDAS
window, as well as in the inter-bank market.
“We also think the forthcoming initiation of a forward market for
30-, 60- and 90-day tenors by the Central Bank should further support
naira by smoothing foreign exchange demand and volatility,” Mr. Gadio
said.
