The Nigerian exchange rate closed the week at around N745/$1 on the black market, thus surviving its first major critical test to avoid the N1000/$1 mark.
Various speculations in early October, when the exchange rate was spiraling, suggest that we could head for N1000/$1 by the end of December. Between the last week of October and the first weeks of November, the exchange rate had fallen as low as N870/$1 when a series of central bank announcements was triggered panic buying.
However, since then, the exchange rate appears to have found an anchor price within the N730-N750/$1 band. If it continues to hold within this limit, then we could be seeing the first hint of suggestion that Nigeria will survive the N1000/$1 scare.
As this year, the exchange rate maintained a fairly stable price during the first two weeks of the month, before closing the year in about N565/$1. Our forecast suggests that this week will be very key to determine how the exchange rate will close this year.
If the exchange rate were to remain below the Peak price of N750 at the end of the week, it will be almost impossible for the currency to fall into the N1000/$1 range by the end of the year. This, of course, depends on a number of factors which, in our opinion, are currently on shaky ground.
First, the readiness of the central bank continue to fund liquidity strategically and largely stealthily it will have to be maintained between now and the end of the year. The external reserve has already fallen below $37 billion this week. Demonstrating more liquidity in the market this year will likely be positive for rates.
Second, a Rising demand for the naira could also help before the end of the year. Nigerians returning home from abroad will likely inject foreign exchange liquidity into the market which could help stabilize the currency.
Companies that are also looking to end the year with a significant cash position will likely absorb some of the pent-up demand for foreign exchange. It is also likely that most businesses have closed for the new year and as such may not contribute much to aggregate demand for foreign exchange.
Another trigger could be what happens in the peer-to-peer market that we track daily at Naijaonpoint, any increase in demand for stablecoins could likely affect rates. Fortunately, the market has also been fairly stable with occasional depreciations offset by periods of appreciation.
Central bank monetary policies They also seem to have caused an initial stir which further depreciated the naira, but now they seem to be working. With interest rates high, most investors now opt for government securities rather than speculate in the naira.
Other policies, such as the introduction of the new naira notes and the activation of security and law enforcement agencies by monitoring merchants’ accounts, have also deterred many traders and speculators.
the recent Rebound in Nigerian crude oil production it is also a big boost to Nigeria’s export earnings. Nigeria’s daily crude oil production increased slightly to a daily average of 1.41 million barrels in November 2022.
This is according to data from the Nigerian Upstream Petroleum Regulatory Commission, which was released last week and seen by Naijaonpoint. Sustained crude oil production will boost liquidity in the forex market and could keep rates at current levels.
Finally, the strength of the exchange rate could be determined by the policy statements of the central bank. As we’ve seen over the last year and a half, most of the rapid depreciation we’ve seen in the market has been triggered by central bank policy statements.
The latest was the announcement of the new naira notes which brought the rates down to N870/$1. Recent central bank MPC meetings have been devoid of any controversial comments that might cause markets to suggest why the exchange rate has stabilized somewhat.
However, any other controversial comments could rock the markets again and affect the exchange rate. While we don’t see this happening anytime soon, it cannot be ruled out.
This is the last major business week before we enter the festive period, and as such these factors will play a major role over the course of the week. If rates hold firm this week within the + or -5% band, we are confident that the exchange rate will end the year at N735/N750 to the dollar.
… The exchange rate must pass a major test this week to avoid the prediction of N1000/$1 Read more in… Naijaonpoint.