The Nigerian foreign exchange (FX) market witnessed a significant downturn in turnover during the first two weeks of August 2024, coinciding with the Central Bank of Nigeria’s (CBN) latest Retail Dutch Auction. According to data from FMDQ obtained by Nairalytics, the total FX turnover plummeted by 21%, dropping from $1.91 billion between July 22 and August 2 to $1.5 billion between August 5 and 16.
Despite the overall decline, a week-on-week analysis shows a 15% increase in turnover, rising from $698.01 million in the first week of August to $804.74 million in the second week. This fluctuation in turnover highlights ongoing volatility and liquidity issues in the official FX market.
Naira’s Depreciation
During this period, the naira continued its downward trend against the U.S. dollar, depreciating by 5%. The exchange rate shifted from N1,500.32/$1 on July 22, 2024, to N1,579.89/$1 by August 16, 2024. The most notable drop occurred on July 23, when the naira weakened by 3.13% to N1,548.76/$1.
This depreciation trend persisted, with the naira reaching its lowest point on August 2, 2024, at N1,617.08/$1. Although there were brief periods of slight appreciation—such as on July 31, August 1, and August 9—the overall trajectory remained negative.
Market Under Pressure
The consistent depreciation of the naira against the dollar underscores ongoing economic challenges, likely driven by imbalances in the supply and demand for foreign exchange. The fluctuations in FX turnover reflect varying levels of market liquidity and possible interventions by regulators to stabilize the naira or manage volatility.
In the first week of August, the CBN conducted a Retail Dutch Auction, selling $876.26 million at a rate of N1,495/$1 to 26 qualified banks. Despite receiving total bids of $1.18 billion from 32 dealer banks, six banks were disqualified due to late submissions or errors in their bid templates.
Earlier reports indicated that the forex turnover on the FMDQ market hit a low of $61.9 million on August 6, 2024—the lowest since January 2024 and the second-lowest daily average this year, following the $59.6 million recorded on January 8, 2024.
Implications for the Market
The ongoing decline in FX turnover and the depreciation of the naira suggest continued pressure on Nigeria’s foreign exchange market. The correlation between higher turnover days and slight naira appreciation may point to strategic interventions or increased dollar supply by the CBN to manage the currency’s value.
As the market navigates these challenges, stakeholders will closely monitor CBN’s actions and the broader economic indicators influencing the FX market.
