Naira Surges to N1400/$ at Parallel Market Amidst Strengthening Economy

Nigeria’s currency, the Naira, has experienced a significant strengthening against the US dollar at the parallel market.

The exchange rate has climbed to N1400/$1 for holders of dollars looking to sell, marking a notable improvement from the N1600/$1 at which it closed on Tuesday.

This strengthening is attributed to a combination of factors, including increased foreign investor appetite for the Central Bank of Nigeria’s (CBN) Open Market Operations (OMO) auctions and Nigeria’s Treasury bills, as well as a notable rise in remittances from the Nigerian diaspora.

According to data from FMDQ Securities, there has been a substantial increase of 4.34% or $1.43 billion in daily turnover from the beginning of the year to March 18th, 2024.

This surge in activity is believed to be a contributing factor to the recent gains of the naira in the parallel market.

At the official Nigerian Autonomous Foreign Exchange (NAFEM) market, the exchange rate sold at N1,492, a strengthening from the N1560.57 to $1 it sold on Tuesday.

Parallel market operators are quoting a buy price of N1400/$1 for holders of dollars looking to sell, allowing them to make a spread of N100/$1.

Speculators, who had previously hoarded dollars, have begun to dump their holdings in response to waning demand.

This has also contributed to the strengthening of the naira in the parallel market. The recent gains of the naira may also be connected to the substantial increase in foreign investors’ participation in the CBN’s OMO auctions and Nigeria’s Treasury bills.

The apex bank has reported that foreign investors dominated these auctions, with approximately 75% of subscribers being foreigners.

In addition to the increased foreign investor activity, the CBN reported a significant increase in foreign exchange inflow in the past month, with remittances from the Nigerian diaspora reaching $1.3 billion in February, a fourfold increase from the $300 million received in the preceding month.

As the Nigerian economy continues to show signs of strengthening, it remains to be seen if the naira will maintain its upward trajectory against the US dollar.

The combination of increased foreign investor interest, improved remittance inflows, and reduced speculative hoarding of dollars could lead to further strengthening of the naira in the coming months.