Why the Naira is surging against the Dollar

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The Nigerian Naira made a significant rebound in both the official and parallel foreign exchange markets on Friday, showing an impressive appreciation to close out the week on a high note.

Data from the Central Bank of Nigeria (CBN) revealed that the Naira strengthened to N1,535 per dollar by Friday, an improvement from N1,567 per dollar on Thursday. This marked a notable gain of N32 against the US dollar.

In addition, data from FMDQ showed that by the close of Friday’s trading, the Naira's exchange rate fluctuated between N1,480 and N1,700.76 per dollar, indicating a range of market movements as the week ended.

On the parallel (black) market, the Naira saw a sharp rise, trading at N1,600 per dollar on Friday compared to N1,715 per dollar on Thursday, appreciating by a substantial N115 during the day. This gain signals a significant shift in the currency’s value in the informal market as well.

According to BusinessDay NG, several key factors have contributed to the recent strengthening of the Naira. One of the main reasons behind the Naira's appreciation is the increased transparency in the foreign exchange market, following the introduction of the Electronic Foreign Exchange Matching System (EFEMS) by the CBN.

The EFEMS, which was launched earlier this week on Monday, allows for the automatic matching of buy and sell orders in real time. This platform enhances the efficiency and fairness of forex transactions, bringing greater confidence to the FX market. The introduction of EFEMS has improved the speed at which authorized dealers, including banks, can execute transactions, which in turn has contributed to increased liquidity and market stability.

An anonymous source explained that the transparency introduced by EFEMS has revealed that banks had a greater supply of dollars prior to the system's launch, which had previously been obscured. This revelation has helped restore confidence in the market and boosted the Naira’s value.

Furthermore, financial experts, including Gbolohan Ologunro, a portfolio manager at FBNQuest, have noted that the recent surge in dollar inflows has been influenced by heightened participation from Foreign Portfolio Investors (FPIs). These investors have been attracted by the attractive yields offered on treasury bills, with recent auctions witnessing record-high yields, peaking at 30.71% before slightly falling to 29.75%. The influx of capital from FPIs has provided further support for the Naira, driving its appreciation in both the official and parallel markets.

Financial analysts are optimistic that the EFEMS platform will help resolve long-standing challenges that have affected the Naira's stability and Nigeria’s foreign exchange reserves. With enhanced transparency, increased dollar liquidity, and more effective market operations, experts believe that the recent positive trend in the Naira’s value could continue. Stakeholders are hopeful that these developments will foster sustained stability in the forex market, enabling the Naira to maintain its strength against the US dollar in the coming weeks and months.