SPECULATORS OF CURRENCY LOSE AS FOREX MARKET DYNAMICS CHANGE

As the Nigerian Naira surged against the US Dollar on the black market after hitting a record low of almost N900/$1 the previous week, currency traders who had been hoarding dollars in anticipation of more declines in the Naira exchange rate began selling the dollars at a loss.

As of the end of trading on Friday, November 11, 2022, the Naira had gained almost N200 and was trading at an average rate of N680 to $1, changing the dynamics of the currency market in favor of the local currency in just five days.

The US dollar was selling for between N714 and N680 in cash transactions on Friday, according to numerous black-market traders with whom Nigerian Tribune spoke. This represents a 28% increase from the N870/$1 recorded in significant street trading on Friday last week.

Black market dealers have linked the unexpected rise in the local currency's value to reduced demand and higher inflows of FX into the market.

Other market observers believe that market intervention by the Central Bank of Nigeria (CBN) was necessary to stop the Naira's free fall, which was already en route to N1,000/$1.

The CBN has tradition of intervention in a variety of FX markets, including the investors and exporters (I&E) and the

Secondary Market Intervention Sales (SMIS) windows, in response to the issues those markets had with foreign currency.

Therefore, the primary reason for this decline in foreign reserves has been the regular intervention in an effort to save the local currency.

According to the most recent information available on the CBN website, Nigeria's gross foreign reserves fell by 8.07 percent, or $3.27 billion, over the course of more than 10 months, to reach $37.25 billion at the beginning of November from $40.52 billion at the start of the year.

Despite the rise in crude oil prices due to the uptick in oil demand since the Russian invasion of Ukraine in February 2022, the fall might be linked to the lack of petrodollars entering Nigeria's economy.

Nigeria's gross reserves have decreased despite increasing oil prices, which we do not expect to rise anytime soon due to rising imports and the ongoing need for foreign currency to pay for services like school fees and medical tourism, among other things. As the general elections in 2023 approach, a combination of these factors will continue to put pressure on FX rates and external reserves.

The Naira has depreciated more than 5% (N23.43/USD) since the beginning of the year versus the US dollar, falling to N446.10/USD as of November 10, 2022 from N422.67/USD at the beginning of the year at Investors and Exporters FX window.

In a similar vein, Nigeria's gross official reserves dropped to $37.37 billion in October, a decrease of almost $866 million.

This amount, which comes after a $772 million decline in September 2022, is the second highest since May of this year.

Nigeria has seen little to no revenue from oil sales this year despite the price increase, which reached a high of $123 a barrel in June of this year.

This was attributed by analysts to the low productivity of the oil industry as a result of widespread crude oil theft and pipeline damage.

According to a recent OPEC report, Nigeria's daily oil production and output increased slightly from the 1.06 million barrels per day reported in August of this year to 1.09 million barrels per day in September 2022.

The condensates are really excluded from the data, and the current output is less than the two million barrels per day that might be produced.

Based on the balance of payments for the 12 months ending in June 2022, checks from the CBN data vault revealed that the entire reserves could fund 8.5 months of imports and 6.5 months when services are included.