By Chibuzor Alli
Nigeria’s foreign exchange market witnessed a sharp slowdown in dollar trading last week, with total turnover plunging by 51.29 per cent to $1.81bn, even as forward exchange rates continued to reflect expectations of further naira depreciation.
The latest figures point to a significant pullback in market activity, with weekly FX transactions shedding $1.90bn from the $3.71bn recorded in the preceding week.
Data from FMDQ showed that average daily foreign exchange turnover also dropped to $361.67m from $742.51m, highlighting the extent of the slowdown in transactions between authorised dealers and their customers.
The contraction was steeper than the 46.57 per cent weekly decline recorded in July, when FX turnover fell to $1.63bn.
Interestingly, the sharp reduction in dollar trading came alongside a marginal weakening of the naira, raising fresh questions about liquidity conditions and the underlying strength of Nigeria’s currency market.
Spot dollar transactions drive market slowdown
The steep decline was largely driven by reduced activity in the spot market, which accounts for immediate or near-immediate foreign currency transactions.
Spot FX turnover fell by 50.91 per cent to $1.79bn from $3.64bn a week earlier, accounting for approximately 97.3 per cent of the overall decline in weekly dollar transactions.
Despite the contraction, spot transactions increased their share of total market turnover to 98.77 per cent from 98.01 per cent.
Average daily spot trading also fell significantly to $357.23m from $727.74m, reflecting weaker activity in immediate dollar transactions.
The forward segment recorded an even sharper percentage decline, with turnover dropping by 69.93 per cent to $22.20m from $73.83m.
Its contribution to total FX turnover consequently declined to 1.23 per cent from 1.99 per cent, while average daily forward transactions fell to $4.44m from $14.77m.
The reduction reflects weaker trading in contracts for future currency delivery. However, the weekly turnover figures should not be confused with the total value of outstanding forward positions in the market.
Forward rates signal continued naira weakness
Beyond the decline in actual dollar transactions, movements in the forward market suggest that expectations of naira depreciation remain firmly in place.
Forward exchange rates weakened across all reported maturities during the week, indicating that the market continued to price in a softer naira over the coming months.
The one-month forward rate depreciated by 0.2 per cent to N1,370.19 per dollar, while the three-month contract weakened by the same margin to N1,405.78.
The six-month forward rate also declined by 0.2 per cent to N1,455.88 per dollar.
The biggest movement was recorded in the one-year tenor, which depreciated by 0.6 per cent to N1,557.65 per dollar.
The one-year contract’s performance suggests that longer-term currency expectations remain more vulnerable to depreciation pressures than shorter-term maturities.
Liquidity inflows could shape naira outlook
Despite the weaker forward market signals, analysts expect the naira to maintain relative stability in the near term, supported by Nigeria’s foreign exchange reserves and current account surplus.
Liquidity conditions in the domestic financial system could also influence the direction of the currency market in the coming days.
The financial market is expected to receive N148.57bn from Treasury bills maturities and another N774.53bn from Open Market Operations maturities this week.
Together, the maturities will inject N923.10bn into the financial system, potentially influencing investors’ liquidity positions and demand for foreign currency.
However, the eventual impact on the naira will depend partly on how investors deploy or reinvest the funds.
For now, the combination of sharply reduced FX turnover and weakening forward rates presents a mixed picture: fewer dollars are changing hands, while market pricing continues to reflect expectations of further currency pressure.
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