The Nigerian Foreign Exchange Market (NAFEM) experienced a significant surge in dollar turnover in October 2024, increasing by an impressive 74 percent to reach $5.4 billion, up from $3.31 billion in September. This data, derived from the transaction records of FMDQ Plc, which oversees the market platform, illustrates a robust month-on-month performance in currency trading. However, a closer look at the quarterly performance reveals fluctuations: total turnover was $12.64 billion in the first quarter of 2024 (Q1’24) but saw a decline of 19 percent in the second quarter (Q2’24) to $10.24 billion. Fortunately, in the third quarter (Q3’24), turnover rebounded slightly, growing by 6.4 percent to $10.9 billion.
Despite the rising dollar turnover, the naira faced depreciation across both official and parallel market segments in October. Specifically, the naira weakened by N133.45, equating to an 8.6 percent decline, closing at N1,675.49 per dollar in the NAFEM by the end of October, a stark drop from N1,541.94 per dollar recorded at the end of September. In the parallel market, the naira also saw significant depreciation, declining by N25 to reach N1,730 per dollar, up from N1,705 per dollar at the close of September.
The narrowing margin between the parallel market rate and the NAFEM rate indicates a changing dynamic in the forex market. In October, this margin reduced to N54.61 per dollar, down from N163.06 per dollar the previous month, suggesting increased alignment between the two markets.
Looking ahead, analysts at Cowry Asset Management PLC have projected that the performance of the naira in the fourth quarter of 2024 (Q4’24) will hinge significantly on the balance between demand for foreign exchange and the supply managed by the Central Bank of Nigeria (CBN). They anticipate that barring any major market disruptions, the exchange rate is expected to fluctuate within a band of N1,500 to N1,700 per dollar, largely dependent on the CBN’s interventions in the market.
Positive developments such as an increase in oil production could potentially strengthen the naira’s value. Additionally, as the festive season approaches, analysts expect a rise in forex inflows, which could further influence the exchange rate. However, it is important to note that the peak period for seasonal import orders has passed, suggesting that there may be a moderation in demand for foreign exchange as the year draws to a close.
In summary, while the foreign exchange market in Nigeria is witnessing a notable increase in dollar trading volumes, the simultaneous depreciation of the naira raises concerns about the overall health of the economy and the effectiveness of current monetary policies. The outlook for Q4’24 remains cautiously optimistic, with the performance of the naira contingent upon various market factors and CBN strategies.
