Nigeria’s Naira Gained N9 Versus U.S. Dollar at the Open Market After Redesigned Banknotes Gets Unveiled…

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For another straight the week, we saw the local currency experience a slight calm in demand in the foreign exchange market following another 100 basis points rate hike by the apex bank after the close of the monetary policy committee meeting on Tuesday plus the unveiling of the newly redesigned Naira.

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The unveiling of the banknotes was done this Wednesday by Nigeria’s President Muhammadu Buhari and aimed at mitigating currency couterfeiting of the high-denominated notes, control total curreny in circulation and also bring to a bear the overall cost of currency management.

Consequently, at the the open parallel market
FX window the Naira strengthened by N9 or
1.15% week on week to close the week at
N775/USD from N784/USD in the previous
week’s close as BDC operators continue to
dump their Naira holdings in search for the
newly redesigned banknotes.

However, the Naira lost the battle against the dollar by N0.66 (-0.15%) week on week at the importers and exporters window to close the week at N446.33/USD from N445.67/USD the previous week as demand for the greenback resume on a pressured momentum.

Thus, market participants maintained bids between N444/USD and N452/USD at the I&E segment while at the open market, bids ranged between N760/USD and N780/USD.

A look at activities at the Interbank Foreign Exchange Forward Contracts market, the spot exchange rate remained unchained from the previous week as it closed the week at N445/USD from last week.

Also, our analysis of the Naira/USD exchange rate in the Naira FX Forward Contracts Markets, there was a mixed trend across tenors as we saw the 1 month, 2 month and 3 month contracts depreciating by 0.49%, 0.51% and 0.31% week on week to close the week at offer prices of N451.47/USD, N455/USD and N458.71/USD in that order.

On the flip side, the 6 month and 12 month forward contracts saw the naira risning in strength against the dollar strength by 16bps and 20bps from which they were priced at N476.24/USD and N503.37/USD respectively.

Elsewhere, the Bonny light crude price dipped by $2.97 (-3.29%) w/w to close the week at USD87.42 per barrel (as at November 24,) from USD90.39 per barrel in the previous week.

This is emanating from the fact that a weakening demand outlook looks to have overshadowed the supply side of the equation.

Nevertheless, energy investors have continued to stay cautious about a highly indeterminate supply outlook heading into wintertime while OPEC is expected to keep oil markets tight.

In the coming week, we anticipate the cool calm to continue across all segments of the FX market barring any distortion in the market and as the apex bank continues its weekly market intervention in the secondary market to shore up the naira.

However, for the redesigned notes, while the CBN redesign strategy is smart and we are seeing results, this may not be the right time given the size hoarded (85% of currency in circulation), election spending and inflation already at a record-high of 21.09% in October.

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