Naira under pressure as forex demand increases

The strong demand for the dollar persisted in the I & E window during Thursday’s trading session.

According to National Daily’s findings, 98% of the trades settled between N360-N362 per dollar, up from 96% in the previous session. This is reflective of the intensity of the demand for the dollar.

As a result, the naira depreciated by 12 kobo at the I & E window to settle at N360.80 per dollar, despite closing flat at the official market (N306.95/$).

The turnover in the I & E window was higher on the day by 75% at US$203 million from US$116 million in the previous trading session.

The interbank market opened with a liquidity of N82 billion, up from N64 billion the day before. System liquidity was bolstered by N54 billion worth of bill maturities and refunds from the retail FX auction that was conducted last week. In consequence, the money market rates- Open Buy Back (OBB) and Overnight (O/N) rates- moderated by c.500bps to close at 10.07% and 10.71% respectively.

Investors were more bullish on the short-intermediate maturities (2-6 TTM) as yields on that end fell by an average of 31bps. The yield on the 2021 bond (2.3 TTM) declined by 61bps inter-day while the yields on the 2022 and 2023 bonds dropped by 31bps and 36bps apiece.

In contrast to the short-mid tenors, investors were slightly bearish on the long end of the curve with the yield on the 2036 bond rising by 11bps on the day. In yesterday’s session, investors traded N4.4 billion worth of the 2025 bond, pushing its yield lower by 27bps to close at 13.99%. Also, the 2023 and 2034 bonds each recorded trades in excess of N3 billion.

Activity in the T-bills market was relatively muted as yields inched slightly higher by c.3bps. Investors were pretty quiet at market open in anticipation of an OMO sale by the CBN. In the event that the CBN did not float an OMO auction the t-bills market picked up momentum, particularly on the intermediate-long tenured instruments.

In addition, we expect money market rates to inch higher today due to outflows from the settlement of bond auction allotments, a tentative OMO issue and banks’ funding provision for the retail FX auction. In the currencies market, we expect the naira exchange rate to be relatively stable against major currencies.