Why the naira depreciated in the official and parallel markets

• The naira has reversed the gains of Friday, July 5, 2024, after it depreciated to N1,523 per dollar in the official market
• Currency dealers quoted the naira at a high of N1,540.75 and a low of N1,474.05 per dollar
• Also, the local currency crashed by 0.35% in the parallel market, trading at N1,530 per dollar, a three-month low

Legit.ng’s Pascal Oparada has reported on tech, energy, stocks, investment, and the economy for over a decade.

The Nigerian naira depreciated against the US dollar on Monday, July 8, 2024, despite improved Forex turnover in the official foreign exchange market.

Willing buyers and sellers quoted the US greenback at N1,523 per dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEM), where the dollar is traded officially.

The Nigerian currency has reversed the days of a few days in the official and parallel markets Credit: Bloomberg/Contributor
Source: Getty Images

Naira crashes to a three-month low

After several days of depreciating in the official market, the naira was exchanged for N1,509 on Friday, July 5, 2024.

Analysts believe the early gains recorded in the official market were due to improved liquidity and enhanced inflows into the Nigerian FX reserve, which increased by $110 million in 24 hours on Sunday, July 7, 2024, to $34.7 billion.

FX reserves rise in 24 hours

Legit.ng reported that Data from the Central Bank of Nigeria (CBN) shows that Nigeria’s foreign exchange reserve gained about $316 million since the beginning of July.

The growth is due to several factors, including rising oil prices, improved diaspora remittances, and CBN’s plan to stabilize the local naira.

FX market experiences improved turnover

According to data from the FMDQ Exchange, currency traders quoted the dollar at a high of N1,540.75 and a low of N1,474.05.

The FX market's turnover improved to $113.46 million, up from the N122 million recorded on Friday, July 5, 2024.

The naira also crashed in the parallel market, hitting a three-month low of N1,530 per dollar against the US.

The naira falls in the official market

The black market depreciation represents a 0.65% loss compared to the N1,520 quoted in the parallel market on Friday, July 5, 2024.

The last time the naira depreciated this much was on March 19, 2024, when it exchanged for N1,570 per dollar, a BusinessDay report said.

Forex trader and financial analyst Jude Ude disclosed that importers' renewed pressure on the dollar led to the crash of the Nigerian currency.

“What we saw before the close of business on Friday, July 5, 2024, was a renewed demand by importers for the dollar. I think the demands were attended to by the banks and currency dealers on Monday, which might have caused the crash.”“What we know is that there is a liquidity squeeze in the system at the moment. The Central Bank of Nigeria is likely attending to portfolio investors who might be moving out their funds,” he said.

The naira crosses new threshold in the official market

Legit.ng earlier reported that the Nigerian currency, the naira, crossed the N1,500/$ mark in the official and parallel markets on Wednesday, June 3, 2024.

The naira traded at about N1,512 per dollar in the official market on Wednesday, June 3, 2024, as against the N1,508 it traded the day before.

Currency dealers in the official market quoted the spot rate at a high of N1,535 per dollar and a low of N1,445.

Source: Legit.ng