Naira may be facing its first major test a few days into the year after a stretched session of slow slide at the unofficial market that ushered it into the year.
At the pseudo pro- market Nigerian Autonomous Foreign Exchange Market (NAFEM) the local currency is testing new lows, breaking the N1,000/$ psychological barrier after two attempts before the yuletide break.
On the first and second day of the year, the local currency held tight, trading around N1180 per dollar at the parallel market. But in the past two days, the currency fell below N1200/$ at different black-market hubs in Lagos and Abuja monitored by our correspondents.
As at yesterday, dealers were quoting as much as N1250 for a dollar even as tight liquidity remains a major feature of street trading. Against tightening trading conditions, there seems to be a breather to speculative buying – a major driver of the activities of black-market currency trading. A few traders explained that the dealers were “still extremely cautious”, hence they were not given to mop-up.
“The year is still very early. Dealers are still studying the market to know the direction rates will go. You may buy large quantities at high rates but unable to sell at the rate you buy,” Yaikasa Bello, a dealer at the Murtala Muhammed International Airport, explained.
The wait-and-see approach is widespread across market clusters in Lagos and Abuja, The Guardian reports. A major dealer, who would not want his name on print, said the mode is fuelled by the ongoing reform in the market.
“There is still much uncertainty even in the face of reform, don’t forget. When a market is in that state, a single pronouncement could cause a 20 per cent fall or rise in the prevailing rates in a single day.
“If you hold even $1,000,000 and lose 20 per cent a single, that is a $200,000 loss. How do you recover from such a loss,” the source asked. It is not the first time dealers have switched to on-demand trading. Last year when it was reported that the Central Bank of Nigeria (CBN) began to clear outstanding foreign exchange (FX) backlog, hard currency saw over 10 per cent wiped off their value against naira in a matter of hours, leaving hundreds of traders leaking their wounds.
Many of them started dumping their hoardings while almost all of the traders were only buying to meet demand from their customers as opposed to speculative trading.
Following the growing uncertainty going into the new year, it was learnt, the price-fixers (who operate majorly from Abuja and Lagos), have not communicated clearly to the market leaving their ‘foot soldiers’ guessing the direction of the market.
The lack of clarity may have been misconstrued for stability in the black market in the past two weeks. But the stability has been stretched in the past two days where the naira seems to have buckled, falling below N1200/$, which it traded on the first and partly second day of the month.
At the official market, naira resumed the year with its usual volatility, breaking the N1000/$ mark on Wednesday to close at N1,035.12 per dollar. The closing price represented a markdown of 4.72 compared to the previous session. That was the third time the currency would test and break the N1,000 ceiling. Earlier in December 2023, it reached an all-time high of N1,099.05/$, sending shockwaves across the market and raising concerns about the outlook of the FX market.
