The Nigerian naira remained stuck at N1600/$ in the black market on Wednesday, despite improving fundamentals in the country’s foreign exchange (FX) market and the U.S. dollar index hovering near a seven-month low.
Data from the Central Bank of Nigeria reveals that remittances from the diaspora rose by 130 per cent annually to $553 million in July 2024 compared to the same month in 2023.
Short sellers of the naira seem unfazed by the Federal Government’s recent introduction of domestic dollar bonds aimed at increasing liquidity in Nigeria’s FX market. According to NAFEX data, the naira closed flat at N1579.74/$, underscoring the ongoing pressure on the local currency despite positive market indicators.
One of the key drivers of the naira’s struggles is the CBN’s inconsistent FX distribution to Bureau De Change (BDC) operators, a factor that traders say is worsening the naira’s decline and contributing to the volatility in the FX market.
Also Read: Naira gains as Nigeria’s FX reserves hit $34.7bn
In the broader global context, the U.S. dollar appreciated slightly in early European trading on Wednesday, but it remains close to its lowest levels in seven months. The dollar’s recent struggles are largely attributed to falling U.S. bond yields, which have reached levels not seen in over a year, fueling recession fears amid unexpectedly weak jobs data.
The dollar index (DXY) has dropped more than 200 basis points in the past month, intensifying concerns about the U.S. economy’s health. With the Federal Reserve’s meeting minutes due later today and revised payroll data expected, traders are closely watching for any signs that could indicate a shift in the Fed’s policy direction.
Market expectations are building around the possibility of an interest rate cut at the Fed’s mid-September policy meeting. The release of the July FOMC meeting minutes is also expected to shed light on the Fed’s stance on inflation and employment, potentially signalling a new trend in the dollar’s performance.
Later today, the Bureau of Labor Statistics will present updated employment growth data through March 2024, with some estimates suggesting a significant downward revision in job gains. This, coupled with the ongoing macroeconomic challenges, is expected to keep the dollar under pressure in the coming months, as traders speculate on the Fed’s next move.
As the DXY hovers around the critical 101.00 mark, the market is bracing for potential volatility, with the dollar’s performance likely to be influenced by the evolving economic landscape and the Fed’s policy decisions.
