Naira’s Dramatic Turnaround: Surges Below N900 to $1 on P2P Exchanges
In a surprising turn of events, the Nigerian Naira has made a strong comeback against the US dollar, sending shockwaves through various markets and dealing a blow to currency speculators.
This rebound has pushed the exchange rate below the N900 to $1 mark on peer-to-peer (P2P) platforms, particularly Binance, marking a significant recovery for the Naira.
As of 6:30 p.m. on Friday, data from Binance showed an exchange rate of N855 to $1, highlighting the Naira’s impressive resurgence.
Meanwhile, the unofficial black market, which often serves as an indicator of the currency’s strength, has seen exchange rates ranging from N1000 to N1,100 for $1 in cash transactions.
This demonstrates the Naira’s strong recovery, with rates below N1000/$1 reported late on Friday.
Speculators, who had bet against the naira’s strength, are now eager to divest their short positions, reflecting their concern about potential financial losses.
This sudden turn of events has caught some traders off guard, leaving them with the dilemma of whether to sell at a loss or hold on in hopes of a rebound.
Many black market dealers have also noted a shift from ‘panic buying’ to ‘panic selling’ in the market, a reversal of the previous trend.
The Nigerian Autonomous Foreign Exchange Market (NAFEM), the official exchange rate market, has seen the naira close at N776.14, marking its strongest finish since October 13th.
This is a significant improvement from the previous day’s close of N793.2.
The breaking of the N900 threshold on the P2P market is considered a psychological victory by Nigerian government officials and their supporters on social media, who have been warning speculators about impending losses for weeks. As the naira continues to strengthen, these predictions appear to be coming true.
The factors behind the Naira’s rally are multifaceted and include increased foreign exchange inflows, effective policy interventions by the Central Bank of Nigeria (CBN), and stringent measures against illegal financial activities.
The central bank’s focus on Tier 2 Nigerian banks and international banks with significant foreign exchange forward contract obligations cleared is one aspect of this.
Companies like Citigroup, Stanbic, and Standard Chartered are among those receiving FX futures deliveries.
The Nigerian government also plans to spend $10 billion to settle FX obligations, support the FX market, and stabilise the naira.
JP Morgan, a US multinational financial services firm, has projected that the naira will trade at N850/$ at the investors’ and exporters’ forex window by the end of 2023.
They believe the recent efforts to restore a flexible FX regime may be sustained, coupled with tighter monetary conditions.
JP Morgan suggests that further measures may be needed, such as requiring commercial banks to adhere to regulatory limits on FX net open positions and exploring the introduction of a cash reserve ratio on FX deposits and the issuance of dollar assets onshore.
Source: Nairametrics
