Dear Esteemed Client:
At the close of trading today, the Nigerian one-year forward exchange rate of Naira/USD depreciated day-on-day to close at a strike price of ₦395.08/US$1 relative to Friday’s close of ₦394.98/US$1. The gap between the forward and the spot rate at the Nigerian Autonomous Foreign Exchange (NAFEX), which closed the day at ₦361.70, is ₦33.38/US$1. This signifies a ca 9.23% spread between spot and forward strike price and may be indicative of a currency depreciation over the next one-year. This pricing also reflects the recent continuous pressure on the reserves which declined 11.89% to US$39.803bn (29/11/2019) from the high of US$45.18bn (10/06/2019). As at the end of November, Year-to-Date intervention sales by the CBN amounted to US$16.59bn; wholesale: US$4700mn, SME & invisibles: US$5165mn and retail: US$6592mn (incl. yuan: ¥723mn).
In our view, the Central Bank of Nigeria (CBN) remains committed to stabilizing the exchange rate at all available official windows and we believe the stable outlook on oil prices and outputs provides sufficient headroom for the apex bank to achieve this objective. However, given the recent decline in reserves and the two quarters of negative current account balance recorded, if the trend is sustained, especially with the reserves falling below the US$30.00bn levels, we may see the exchange rate falling by close to 10.00% in the medium to long term. Read more…
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