Forex volumes fall 25% in August as official markets struggle for liquidity and stability
Nigeria’s official foreign exchange (FX) market saw a significant decline in trading volumes in August despite the first retail Dutch auction conducted by the Central Bank of Nigeria (CBN).
According to data obtained by Nairalytics, the research arm of Nairametrics, from FMDQ, total revenues have fallen to $3.25 billion, a significant drop of $1.08 billion from the $4.34 billion recorded in July 2024.
A 25% decline shows that the official foreign exchange market continues to struggle with liquidity and stability.
What the data says
The average daily foreign exchange volume decreased from $189.42 million in July to $144.71 million in August, representing a decrease of 23.61%. This decrease suggests a significant decrease in market activity and indicates increasing difficulties in accessing foreign currencies.
The lowest foreign exchange volume in August (USD 61.9 million) was 42.74% lower than the lowest volume in July (USD 108.16 million). This sharp decline indicates that the market was more restricted in August and liquidity issues were more prominent.
In July, it peaked at $348.82 million on July 11, while August’s peak was slightly lower at $323.11 million on August 9.
The steady decline in foreign exchange volumes from July to August, with significant daily fluctuations, highlights the growing pressure on formal markets. The reduced volumes suggest tight dollar liquidity, which could put further downward pressure on the naira.
As the market faces these challenges, it may become increasingly difficult for the Central Bank of Nigeria (CBN) to maintain the value of the naira, which could potentially lead to further depreciation if the situation persists.
Naira has fallen 1.79% to dollar
During the review period, the naira plummeted to $1.76% on the official NAFEM market.
The local currency moved from N1.570/$1 at the beginning of the month to N1.598.56/$1 in the official market in August 302024.
However, this depreciation is mild compared to the previous month, when it recorded 6.43%.
Despite the modest decline, data shows that the market is under pressure, with the Naira continuing to fall against the dollar. This reflects underlying economic difficulties, which may include supply-demand imbalances in the forex market.
The strongest point for Nair was N1543.84/$1 on August 21, while the lowest point for Nair was N1617.08/$1 on August 2.
The naira averaged 1,586 naira in August, about 1.6% higher than the July average of 1,561 naira, suggesting that the currency was more stable in July than in August.
In August 2024, volatility increased and the value of the Naira continued to experience downward pressure. This decline was further exacerbated by lower foreign exchange trading volumes and increased market uncertainty.
What you need to know
In the first week of August, the Central Bank of Nigeria (CBN) auctioned $876.26 million to 26 eligible banks at N1,495/$1 in its latest retail Dutch auction.
According to a statement from the CBN, a total of $1.18 billion worth of bids were received from 32 dealer banks. However, the bids of six banks were disqualified. Four banks failed to meet the deadline and two banks did not submit their bids as per the template submitted.
Nairametrics previously reported that the foreign exchange volumes of FMDQ, where the exchange rate is officially traded, closed at 6 August 2024, with sales of just $61.9 million, the lowest since January 2024.
This was the second-lowest daily average sales figure of the year, behind only the previous low of $59.6 million recorded on January 8, 2024.
Market operators, including currency exchange house (BDC) operators, have expressed concern over the CBN’s volatile dollar supply, which they claim is hampering efforts to stabilize the naira.
As the CBN grapples with the challenge of managing dollar supply, markets could be vulnerable to further depreciation, especially if foreign exchange volumes continue to decline.
While the outlook for the naira remains uncertain, both businesses and market operators are bracing for the possibility of further depreciation in the coming months.