Naira will see bright days ahead, say FDC analysts
Nigeria’s currency, which has been less volatile in recent months, is expected to appreciate against the dollar by the end of the year, according to analysts at Lagos-based Financial Derivatives Company, headed by economist Bismarck Rewane.
After appreciating in the second quarter to N1,525/$, the naira has traded within a tight range of N1,500/$ to N1,615/$ over the past two months, indicating its relative stability in the forex market, they said.
“This reduced volatility is due to several factors, including the reintroduction of the retail Dutch auction system in which $876mn was sold, higher interest rates, tight liquidity, and challenges in selling cumulative inventory,” they said.
The analysts pointed out that many oil marketers who typically book forward contracts of up to 90 to 120 days have started going short due to concerns that products from the Dangote refinery would soon enter and saturate the market.
These combined factors have led to buyer tentativeness and reduced demand for forex, according to FDC.
“Looking ahead, if the money markets remain tight, interest rates stay high and the seasonal effect of the import duty waiver diminishes, we expect the naira to appreciate to N1,450/$ and N1,893/£ at Christmas. This appreciation could also be supported by the main crop cocoa harvest and inflows by returning friends and family in December,” the analysts added.
