FX futures contracts surge, signal expectation of naira devaluation

As the Nigerian currency continued to wobble against the dollar, the demand for foreign exchange futures contracts soared more than eight-fold this week, according to data from FMDQ, a securities exchange.

The surge in FX future contracts signals expectations of the much-awaited devaluation of the naira after the end of the tenure of President Muhammadu Buhari, who is usually disinclined to devalue the currency.

Bola Tinubu, who will take the helm of Africa’s biggest economy on May 29, said in his manifesto ahead of the Feb. 25 election that his government would “review and better optimise the exchange rate regime” to achieve “a stronger, more stable naira”.

In the FX futures market, $159.69 million worth of FX futures contracts were traded in 15 deals this week, representing an increase of 739.59 percent when compared to the $19.02 million contracts traded in one deal last week, FMDQ said on Saturday.

“For the week-ended April 28, 2023, the average Nigerian Autonomous Foreign Exchange Fixing (NAFEX) rate was $/N462.42, compared to $/N462.32 recorded in the week-ended April 20, 2023, representing a depreciation of the naira against the dollar,” it said.

The total turnover in the FX spot and derivatives markets rose by 10.64 percent to $480.06 million from $433.90 million last week.

FMDQ said the week-on-week increase in total turnover was solely driven by the 304.02 percent increase in FX derivatives turnover, offsetting the 19.20 percent decrease in FX spot turnover. 

“The w-o-w increase in FX derivatives turnover was driven by the 739.59 percent increase in FX futures turnover, which offset the 89.92 percent ($18.91 million) decrease in FX forwards turnover,” it said.

The total value of transactions in the FX spot market declined to $318.25 million from $393.85 million last week.

Leave a Reply

Your email address will not be published. Required fields are marked *