Forex market remains calm as crude prices, foreign reserves rise

The foreign exchange (forex) market was muted last week, even as crude oil prices in the international market rose marginally and the nation’s foreign reserves inched up.
Specifically, the Central Bank of Nigeria (CBN) spot and parallel markets trade. Flat to close at N379/$ and $486/$ respectively. The situation was the same at the Investors’ and Exporters’ window as the rate closed flat at 410/$.
Activity level however dipped 20.7 per cent to $312 million from $393.6 million in the previous week.
In spite of the volatility of oil prices last week, the Brent rose marginally by 0.1 per cent to close the week at $64.6/b. analysts say, the slow vaccination and brewing concerns about a third wave of COVID-19 lockdown led to the volatile prices. Also, analysts from Afrinvest said, the Suez Canal blockage backed up an increase in price.
Foreign reserves rose 0.5 per cent to $34.6 billion.
At the FMDQ Securities Exchange (SE) FX Futures Contract Market, the total value of open contracts rose 1.7 per cent ($106.9m) to $6.5 billion. The MAR 2022 instrument (contract price: N437.88) sustained its strong demand with an additional subscription of $5.0 million, which took total value to $10.5 million.
Also, the JAN and FEB 2022 instruments (contract prices: N434.08 and N435.08) saw significant buying interest, as total value increased $48.0 million and $38.4 million respectively to $233.3 million and $413.4 million.
The Open Buy Back (OBB) and Overnight (OVN) rates opened the week at 14.5 per cent and 14.75 per cent respectively, lower than 25.0 per cent and 25.5 per cent in the previous week.
On Friday, OBB and OVN rates further fell to 10.5 per cent and 10.8 per cent respectively despite a decline in liquidity levels. Performance in the secondary market was bearish as average T-bills yield closed at 4.6 per cent, up 1.0 per cent w/w. There was sell-off across board as yield rose 54bps, 1bp and 249bps w/w respectively for the 91, 182 and 364-day instruments. In the week ahead, we expect the CBN to mop-up liquidity following OMO maturities of ₦180.8bn and rates would remain within the same band.
During the week, the Open Market Operation (OMO) maturities worth N50.0 billion hit the system. However, system liquidity closed lower at N54.8 billion compared to N120.1 billion at the beginning of the week following CBN’s OMO auction worth N40.0 billion. The OMO sale was oversubscribed at a bid-to-cover ratio of 6.7x, with the 355-day instrument enjoying the most demand. Marginal rates remained the same as in the previous auction at 7.0 per cent, 8.5 per cent and 10.1 per cent for the 89, 173 and 355-day instruments respectively. With considerations of high liquidity and sustained attractive rates, we expect the strong demand to be maintained in succeeding auctions.

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