FX: Naira Appreciates Rapidly Against the Dollar as Sellers Struggle to Find Buyers
The exchange rate between the naira and the dollar continued to appreciate rapidly on the official Enhanced Foreign Exchange Market (EFEM), closing at N1,535/$1 on Friday, December 6, 2024.
This marks a significant milestone for the naira, which has strengthened further after three consecutive days of appreciation following the Central Bank of Nigeria’s (CBN) introduction of the Enhanced Foreign Exchange Market System (EFEMS).
During the trading day, the intra-day high was N1,575, while the low was N1,510, with the average rate settling at N1,533. Meanwhile, the black market rate fell sharply to as low as N1,570/$1, with operators reporting an unusual scenario where there were more sellers than buyers.
A source, according to Nairametrics, disclosed that “No one wanted to buy dollars,” indicating a fundamental shift in market sentiment. Some sellers reported offloading dollars for as low as N1,500/$1, while some cryptocurrency platforms exchanged stablecoins for the naira at rates below N1,500/$1 via peer-to-peer (P2P) platforms.
At N1,535/$1, the naira recorded one of its best performances in recent months, adding to the momentum gained since the launch of EFEMS. Friday’s closing rate represents a notable improvement over the previous day’s rate of N1,567/$1, reflecting increasing demand for the naira in the official forex market.
In the parallel market, rates dropped further to around N1,570/$1, as sellers faced challenges finding buyers. Some parallel market operators even suggested that the exchange rate fell as low as N1,500/$1 for certain inflows.
The unusual surplus of dollar sellers indicates growing confidence in the naira’s trajectory and a reduction in speculative activity. This trend aligns with the narrowing gap between the official and black market rates, which has decreased to less than N35, or approximately 2.3%, as of Friday’s close.
Investment platforms like Bamboo and Trove continued to quote rates for converting naira to dollars at N1,549.50 and N1,629.49, respectively, compared to N1,653/$1 and N1,654/$1, suggesting a slight lag in adjustment relative to the official and parallel markets.
Additionally, flagship cryptocurrency Bitcoin sold for $101,000 as of 8 PM Nigerian time, with altcoins also showing signs of gains ahead of a potential Donald Trump presidency. The rapid appreciation of the naira in the parallel market suggests that EFEMS is affecting unofficial forex operations, as speculators struggle to gauge the impact.
With fewer buyers willing to hoard dollars and more sellers looking to offload, the naira’s strength seems to be impacting both official and unofficial markets. Market analysts suggest that this development signals a paradigm shift, as individuals and businesses now see greater value in holding naira over dollars.
The introduction of EFEMS by the CBN appears to be enhancing transparency and efficiency in Nigeria’s forex market. The platform consolidates all forex transactions into a single market, delivering gains for four consecutive days and further narrowing the disparity between official and parallel market rates.
EFEMS requires all foreign exchange transactions to be priced through the system, ensuring that daily exchange rates are transparent and accessible to the public.
This centralized pricing mechanism has been instrumental in reducing speculative behavior and bolstering confidence in the naira. Read More
