Naira depreciates beyond ‘critical’ line N7 to N502/$ … Maintains dignity at NAFEX, appreciates N1.25

The naira for the first time descended to a new low of N502 to the United States dollar at the parallel market by N7 or 700 kobo last week. But the local currency maintained some dignity at the autonomous market where it appreciated N1.25 or 125 kobo to the dollar.
This is in spite of that fact that, the Brent crude oil price surged past the $70 per barrel. mark gaining 2.9 per cent week-on-week (w/w) to $71.77bbl. as the slow pace of talks on the Iranian nuclear deal agreement signalled a delay in the legitimate return of Iranian oil into the market.
Meanwhile, the OPEC+ reiterated its plan to ease production cuts by 840,000bpd in July in response to the strong demand outlook for oil due to the re-opening of economies in the U.S. and Europe. On the domestic front, external reserves fell 0.1 per cent w/w ($48.8m) to $34.2 billion from $34.3 billion the previous week.
At the parallel market, rates opened at N495.00/$ and closed N502.00/$, depreciating by N7.00 w/w.
At the Investors’ & Exporters’ (I&E) Window, the NAFEX rate opened the week at N412.00/$ and closed at N410.75/$ on Friday, appreciating by N1.25 w/w. Activity level in I&E window reduced by 30.2 per cent to $695.5 million from $996.6 million recorded in the previous week.
At the FMDQ Securities Exchange (SE) FX Futures Contract Market, the total value of open contracts settled at $4.3 billion, up by 7.7 per cent ($303.4 million) from the prior week. This was due to the new subscription in the MAY 2022 (contract price: N436.48) and JUN 2022 (contract price: N439.13) instruments. The MAY 2022 instrument (contract price: N436.48) received the most buying interest in the week with additional subscription of $299.4m (up by 684.3 per cent w/w) which took the total value to $343.1m.
“However, the JUN 2022 instrument (contract price: N439.13) was the least subscribed, with an additional subscription of $4.0 million (up by 11.8 per cent w/w) for a total value of $38.1 million while the other instruments under our coverage remained flat for the week. In the coming week, we expect rates to continue to trade within similar band across different FX segments of the market”, said analysts at Afrinvest.
In the money market, the Open Buy Back (OBB) and Overnight (OVN) rates fell w/ w 3.7ppts and 3.9ppts to 15.0 per cent and 15.3 per cent respectively from 18.7 per cent and 19.2 per cent the previous Friday. System liquidity rose to N130.9 billion w/w from N87.8 billion, due to the N55.5 billion Open Market Operations (OMO) repayment last week Tuesday.
The CBN, on Thursday conducted an OMO auction worth ₦20.0bn.
Demand for the 348-day instrument auction was the highest (Offer: N10.0 billion; Subscription: N49.0 billion; Sale: N10.0 billion) as it was oversubscribed by 4.9x with stop rate at 10.1 per cent. Similarly, 180-day instrument (Offer: N5.0 billion; Subscription: N8.8 billion; Sale: N4.3 billion) was oversubscribed by 1.8x with stop rate of 8.5 per cent. Alternatively, the 89-day instrument (Offer: N5.0 billion; Subscription: N4.0 billion; Sale: N4.0 billion) was undersubscribed 0.8x with stop rate of 7.0 per cent.
In the Treasury bills secondary market, performance was bearish as average yield rose by two basis points (bps) w/w to close at 6.8 per cent. Consequently, the 91-day and 182-day instruments saw sell-offs as yields rose by 7bps and 5bps w/w respectively to 4.7 per cent and 6.2 per cent. Alternatively, performance was positive at the long-end as the 364-day instruments’ yield fell by 8bps to 9.5 per cent. In the coming week, we expect secondary Treasury bills’ rates to continue to thread in the same band.

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