Naira Expected to Rise on Improved Dollar Supply



 By Obinna Chima

The naira is expected to strengthen this week on improved dollar supply to the market, currency dealers have predicted.
The naira fell to N470 to the dollar on the parallel market last Friday, as against the N455 to the dollar it was the preceding Friday. However, on the interbank FX market, the spot rate of the naira closed at N304.50 to the dollar in Friday.
However, the nation’s currency has been estimated to reverse its losses as traders anticipate improved dollar supply from international money transfer agencies to ease a shortage, which has pushed down the local currency this week.

“The naira should appreciate gradually in the coming days after the expected sales of about $21 million by Travelex last Thursday and subsequent extension of dollar sales to bureau de change operators in the other part of the country,” the President of the Association of Bureau De Change Operators of Nigeria (ABCON), Aminu Gwadabe told Reuters.
Travelex and First Bank are authorised by the central bank to sell dollar to bureaux de change to boost liquidity and narrow the gulf with the official rate.
But consistent with recent trend, the naira has remained relatively stable against the dollar on the interbank market. Also, on the Bureau De Change (BDC) segment, the naira went for N385 to the dollar.
Nonetheless, in the futures market, the Central Bank settled $270.6m in notional value of the maturing OCT 26 2016 futures instrument on last Wednesday. As with the trend since introduction of the futures market, the central bank issued a new 12-month tenor instrument (OCT 25 2017) worth $1 billion at N258.50/US$1.00 to replace the maturing instrument.

“In the interim, we expect the exchange rate at the parallel market to remain pressured due to restricted access to official windows and surge in dollar demand associated with the festive season. The CBN is yet to guide to a metric that would trigger a shift from its current peg; thus, we expect FX rate at the official market to remain stable whilst the CBN continues to intervene via spot/forward sales of the greenback,” analysts at Afrinvest West Africa stated.

Bond Market 

Meanwhile, sentiments in the local bonds market were mixed last week as average yield across benchmark bonds declined on two trading days and increased on three days. Average yield settled at 15.1per cent last Friday, down two basis points week-on-week.

The week started with strong buying interest across tenors which resulted in a nine basis points (bps) decline in average yield from 15.1 per cent across benchmark bonds (last Friday) to 14.9 per cent last Monday. Market activities however quietened towards mid-week as investors redirected attention towards the money market on the back of the CBN’s activities in the primary window.

Accordingly, a report by Afrinvest showed that Average yield across benchmark bonds rose four bps and two bps last Tuesday and Wednesday respectively as investors sold off particularly at the shorter end of the curve. Average yield dipped one bp at the end of trade last Thursday with longer tenured rates moderating.

Furthermore, it showed that performance in the Nigerian corporate Eurobonds market mirrored the preceding week as buying interest continued in the Access 2017 (down 20bps W-o-W), Guaranty 2018 (down 10bps W-o-W)  and Zenith 2019 (down 26bps W-o-W) this week. Investors however took profit on the Fidelity 2018 Eurobond instrument as yield rose 19bps. Nevertheless, the Guaranty 2018 Eurobond commands the highest year-to-date return at 8.5%.
“In the week ahead, we expect yields in the local bonds market to moderate marginally as we anticipate more buying activities from PFAs as they reposition their portfolios ahead of the new month,” Afrinvest added.

Interbank Naira Market 
Buoyed by improved system liquidity, money market rates moderated during the week, easing from triple/double digits recorded in recent weeks to close the week in single digit despite a series of open market operations (OMO) auctions. The open buy back (OBB) and overnight rates settled at 9.7 per cent and 10.3 per cent last  Friday, down 4.3 per cent points apiece, from the preceding  Friday’s 14 per cent and 14.5 per cent

The week opened with aggregate financial system liquidity in a deficit of N19.4 billion. However, OBB and overnight rates inched four per cent and 3.8 per cent points lower to close at 10 per cent and 10.8 per cent respectively on the back of the inflow from September FAAC allocation which improved system liquidity level, enough to offset the impact of an OMO auction by the central bank, where N120.2billion was mopped up at stop rates of 18 per cent  and 18.5 per cent for the 185-days and 339-days instruments, Afrinvest revealed.
“The apex bank further sold N51.5 billion and N53.8billion worth OMO bills on Tuesday and Wednesday in a bid to mop up excess liquidity, thus OBB and overnight rates rose 67bps and 83bps respectively to close at 10.7 per cent and 11.6 per cent on Tuesday, eventually settling at 10.5 per cent and 11.3 per cent by midweek.

“OBB and overnight rates moderated to single digit on Thursday to close at 8.8 per cent and 9.5 per cent respectively due to the impact of N144.9billion OMO maturity on system liquidity. Activities in the Treasury Bills market were largely bearish as average Treasury Bills rate trended upwards on most trading days during the week on the back of the Central Bank’s aggressive activities in the primary market.

“Average Treasury Bills rate rose 20 bps on Monday to close at 17.2 per cent  as sell sentiment trickled into the market. Despite improved system liquidity, the sell sentiment persisted on Tuesday as average Treasury Bills rate increase 51bps to close at 17.7 per cent as the CBN mopped up liquidity via OMO auctions at higher rates,” it added.

It was estimated that the central bank would continue mopping up liquidity through OMO auctions and thus expect money market rates to inch higher from current levels.  There is also a scheduled Treasury Bills maturity of N123 billion expected to hit the system but its impact on liquidity levels will be neutral due to a rollover of the same net amount.