Naira Weakens to N1,745/$1 on Parallel Market Amid Speculative Trading

The exchange rate between the Nigerian naira and the U.S. dollar slid back to around N1,745/$1 on the parallel market as of Wednesday, December 11. This marks a sharp reversal from the sub-N1,600 levels recorded late last week, fueling concerns over the currency’s stability.

An earlier report had quoted the exchange rate at approximately N1,685/$1, but rates began to depreciate swiftly as business activities resumed fully. By 10 a.m. Wednesday, multiple sources confirmed rates exceeding N1,700/$1, suggesting last week’s gains may have been a “dead cat bounce,” a term used to describe temporary market recoveries that precede further declines.

Parallel Market Quotes and P2P Rates

Checks on Wednesday revealed varying rates across platforms and exchanges. Some peer-to-peer (P2P) exchanges quoted the naira at N1,715/$1, while certain International Money Transfer Operators (IMTOs) offered rates as high as N1,745/$1. Popular stock trading apps such as Bamboo and Trove listed rates at N1,730/$1 and N1,736/$1 respectively, reflecting the continued depreciation of the naira in informal markets.

Official Market Shows Relative Stability

In contrast, the official exchange rate closed at N1,525/$1 on Tuesday, marking its strongest close since the introduction of the Central Bank of Nigeria’s (CBN) Enhanced Foreign Exchange Market (EFEM). However, this improvement in the official rate has done little to narrow the widening gap between the official and parallel markets. The disparity now stands at roughly N200, signaling a potential disconnect between the central bank’s managed official market and the parallel market, which remains the go-to avenue for most retail traders and businesses.

Speculators and Market Dynamics

Some Bureau de Change (BDC) operators who spoke to Nairametrics attributed the naira’s recent weakening to speculative trading. According to them, speculators appear to be holding firm positions despite the introduction of a more robust trading platform by the CBN.

The current situation underscores the challenges facing Nigeria’s foreign exchange market, with demand pressures and speculative activities continuing to influence the naira’s performance. Analysts believe that without significant interventions, the naira may struggle to maintain stability in the parallel market.

Implications for the Economy

The widening gap between the official and black market rates poses a significant risk to Nigeria’s economy. It fosters uncertainty for businesses reliant on foreign exchange and undermines investor confidence. Additionally, it creates opportunities for arbitrage, where traders profit from the differences between the two markets, further complicating efforts by the CBN to achieve a unified exchange rate.

As Nigeria navigates this turbulent period, stakeholders will closely watch for any measures from the CBN aimed at curbing speculation and stabilizing the naira. For now, the parallel market remains volatile, leaving many to question the long-term trajectory of the naira.