Since the adoption of the Nigerian Autonomous Foreign Exchange (NAFEX) rate as the official exchange rate, the Naira has been running out of steam in the parallel market, Vetiva Capital analysts said in a note.
From N485 to a dollar before the Central Bank of Nigeria moved to converge its official exchange rate and NAFEX rate, Naira has broken N500 resistance level, traded at N502 early on Monday.
In the parallel market, currencies traders are hoarding the greenback to put additional pressure on the already plaque local currency.
The spread has widened as a result but the monetary authority plans to raise foreign currencies supply to Nigerian banks for eligible transaction.
Naira Faces Pressure from Parallel Market after CBN Adopts NAFEX
In a commentary, Vetiva Capital analysts said while controversies on the huge spread enjoyed by Bureau De Change operators were debunked, news reports show BDC operators imposed a ban on street hawking to stem the slide in the exchange rate.
“In our view, we believe the free fall in the parallel market rate can be attributed to pent-up demand for dollars by both legitimate users and speculators”.
The investment firm added that should the Naira falls beyond ₦500, it could see the CBN unleash some FX policies to check arbitrage and stem the falling tide in the Naira, even as the Bank aims at unifying the exchange rates.
Commenting on the equity market performance, analysts said following consecutive positive sessions and some capital appreciation especially among the small-cap stocks, Vetiva believes that investor sentiment is on a positive path.
However, analysts said they do not rule out the possibility of some profit-taking at this week’s trading. This week, Brent crude oil price surged past the $70 barrel per litre (bbl) mark gaining 2.9% week on week to $71.77bbl. as the slow pace of talks on the Iranian nuclear deal agreement signaled a delay in the legitimate return of Iranian oil into the market.
Crude market uptrend is supported by strong demand outlook for oil due to the re-opening of economies in the U.S. and Europe.
On the domestic front, external reserves fell 0.1% or $48.8 million to $34.2 billion from $34.3 billion in the previous week.
In the currency space, the parallel market rates depreciated by ₦7.00 to close at ₦502.00/$1.00. At the Investors and Exporters Window, the NAFEX rate appreciated by ₦1.25 week on week to close at ₦410.75/$1.00.
In the new week, Afrinvest said it expects rates to continue to trade within similar band across different FX segments of the market.