Naira has appreciated significantly in the foreign exchange market and currently trades at N535/$1 at the parallel market. The appreciation of Naira has been on an upward slopping trend, causing forex hoarders to lose billions in the market.
Furthermore, as at September 30 1:04 pm GMT naira to dollar traded at N580/$1. Thus, from that specific date to the current time frame naira gained by N45 representing an 8.4% decrease down the time series.
When Did Naira Start Appreciating ?
Naira began to appreciate on the 29th of October 2021, According to Forex analyst Olajide Femi “The appreciation of naira started marginally by one or two naira. This trend followed into the next week, of which the decline was still marginal before the massive gain occured”
He further explained that the initial marginal gain did not create any distortion in trade at the foreign exchange market. “ When naira began to appreciate marginally, suppliers and buyers continued to trade as usual, the demand for dollar still remained high and supply equivalent was fairly available.
Several signals of the sporadic gain of Naira includes macroeconomic events which indicated a dollar depreciation and Naira gain, the in-equilibrium in the price of crude oil reaching all-time highs of $82 to $85 and inflationary pressure experienced by major economies have all created red flags for the appreciation of Naira.
How is the Market Reacting ?
According to Chima Ebele, a foreign exchange specialist, the forex market is experiencing a high supply of dollar, However customer are not trading.
She further stated” There is a high level of supply of dollars in the foreign exchange market, but customer are hesitant to trade. Currently, trading activities are very low, There is no naira in circulation”.
She further added that customers are hesitant to trade due to the spontaneous rate change in a short period of time, the ongoing rate instability has caused market uncertainty and demand push-back.
“Traders are not buying dollars, they are skeptical due to the dollar crash and are watching to note any other significant change in the market.
The foreign exchange market has reacted cautiously in response to the change in rate by withholding demand and limiting transaction activities. However, there has been no economic variable that indicates that the appreciation of Naira with the current spot rate at N530/$1 will continue till the year-end.
Author: Rate Captain