Foreign exchange traders

Obinna Chima

The naira continued its upswing against the United States dollar at both the interbank and the Central Bank of Nigeria’s (CBN) bi-weekly auction Monday  on low demand for the greenback.

Market sources also said that inflow of the greenback from the Asset Management Corporation of Nigeria (AMCON), which sold some undisclosed amount of dollars to banks following its debt recovery, also supported the naira.

Specifically, data made available by the Financial Market Dealers Association (FMDA) showed that at the interbank, the local currency climbed by 10 kobo to N160.90 to a dollar at the end of yesterday’s trading, as against the N161 to a dollar it closed last Friday.
On the other hand, at the CBN’s Wholesale Dutch Auction System (WDAS), naira gained three kobo to close at N155.87 to a dollar yesterday, over the N155.90 to a dollar it was as at last Wednesday. The apex bank sold only a total of $163.525 million, out of the $200 million it supplied to the market.

This reflected a drop in the demand for the greenback as the banking sector regulator for the first time since this year, published the amount of dollar demand. 16 banks participated in the auction.
The CBN had sold a total of $251 million out of the $300 million it offered at the previous auction.
The sub-Saharan Africa’s Economist at Renaissance Capital, Yvonne Mhango, had said that Nigeria s heavy import dependence was responsible for the country’s high forex outflow and the perennial weakness suffered by the naira.

“The country’s high import dependence explains why the exchange rate is often the bellwether for Nigeria’s economic health, and why there is a swift pass-through of exchange rate movements to inflation. About a third of Nigeria’s forex outflows are due to invisibles, which refers to services. These include international payments for services as well as movement of money for which there is no contra transaction, such as transfer payments.

“Nigeria’s large oil and gas industry largely explains the country’s substantial payments to service providers. Renaissance Capital is of the view that the local content bill will compel operators to source services from local providers and this will help ease the services’ payment burden on forex outflows.

“However, the impact of this is likely to only be felt over the medium-to-long term, as presently the skill set for Nigeria’s service provider industry is inadequate, in our opinion,” she had argued.