Naira remained stable within its lower range on both the Peer-to-Peer (P2P) market and the black market, while the U.S. dollar experienced a slight uptick on Monday. The market’s attention is now directed towards upcoming economic indicators and statements from the United States Federal Reserve, seeking guidance on potential interest rate adjustments.
In the early hours of Monday, the naira traded at approximately N1272/$ on the P2P market, an unofficial platform popular among crypto traders, retail investors, and speculators. This marked a shift from the weekend rate of N1255/$. Concurrently, the black market reported an average exchange rate of N1,260 for a dollar to naira.
Despite reports indicating that Afrexim Bank had disbursed the first tranche of the $3.3 billion crude oil repayment loan to the Nigerian National Petroleum Company Limited (NNPC), speculators maintained their influence on the dollar. The initial payment amounted to $2.25 billion, with the remaining $1.05 billion slated for later processing.
The Nigerian government anticipated that such financial transactions would alleviate foreign exchange backlogs, addressing concerns contributing to the naira’s recent underperformance. NNPC stated that the facility was expected to enhance the naira’s performance against major currencies and bolster liquidity in the Forex market.
Market participants are closely watching the Central Bank of Nigeria (CBN), expecting potential adjustments in response to the commitment to maintaining price stability. An anticipated interest rate increase could not only mitigate inflationary pressures but also stem capital flight, potentially strengthening the naira.
In London trade on Monday, the U.S. Dollar Index saw a marginal increase of about 0.1%, indicating that market expectations of early interest rate cuts by the Federal Reserve remained largely unchanged.
The failure of the U.S. Dollar Index to sustain a breakout above 103 index points, coupled with a sharp bearish reversal, suggests a possible near-term peak, providing an opportunity for the naira to recover.
As Nigeria resumes business activities, the naira is expected to navigate within its band at the official market, with market sentiments leaning neutral on the dollar index. Currency traders, using the CME Fedwatch tool, are pricing in a 70% likelihood of a 25-basis point drop in March, reflecting an increase from the 64% probability observed a week earlier.
Recent data indicated a more significant-than-expected decrease in producer price index inflation in December, reinforcing expectations of an early rate reduction. The focus now turns to addresses by various Fed officials and the upcoming release of U.S. retail sales data, which are anticipated to provide insights into the nation’s inflation outlook.