6 June 2012

Nigeria: WDAS - Dollar Supply Increases By 27 Percent in May

The amount of the United States dollar offered by the Central Bank of Nigeria (CBN) at its regulated bi-weekly forex market increased by 27 per cent to $1.370 billion in May, THISDAY findings have shown.

Data compiled by THISDAY, showed that the amount reflected an increase by $290 million, as against a total of $1.080 billion offered by the apex bank at the official market in April.

Just like the previous months, the CBN did not publish the amount of dollar demanded by dealers throughout the eight auctions held in May.

In the month under review, THISDAY checks also revealed that out of the eight auctions observed at the Wholesale Dutch Auction System (WDAS), while the apex bank offered $150 million to dealers at four separate auctions, $200 million to market participants twice, it offered $250 million once. It also offered $120 to the auction held on May 7.

The naira oscillated around the N155 to a dollar bank in May. The highest value it attained in the month under review was the N155.69 to a dollar it closed at five separate auctions in the month under review, while its lowest value in the month was N155.75 to a dollar.

The relative stability observed at the forex market was attributed to the gradual build-up of Nigeria's external reserves. The forex reserves maintained an upward trend throughout last month as it gained a total of $961million to $37.668 billion as at May 31, as against the $36.707 billion it was on May 2, THISDAY findings also showed.

FSDH Securities Limited had attributed the performance of the local currency to the increase in the forex earnings as a result of rise in oil price and oil output and reduced dollar demand from oil marketers.

Emerging Markets Strategist, Standard Bank Plc, Samir Gadio, pointed out that although the local currency was stable at the WDAS last month, it was under pressure at the interbank segment of the market the previous month, as a result of the sale of treasury bills by some foreign investors.

"Such a development was correlated with the shift to a more risk averse market environment amid uncertainties surrounding the future of the euro zone and similar pressure on emerging and frontier market assets. Although the offshore selling appears to have relatively subsided on the fixed income side, some foreign investors have continued to exit their naira denominated positions.

"The offshore-led sell-off has also probably subsequently translated into a negative shift in domestic confidence, increasing the local positioning against the naira and overall dollar demand," Gadio said in a note to THISDAY.

He, however, argued that the position of the forex market last month was also affected by the delay in the second tranche of Nigerian National Petroleum Corporation (NNPC) forex sale to the market.

Gadio added: "Meanwhile, the CBN has continued to intervene and sell dollar in the interbank market over the past fortnight, a stance that appears to have ensured a N/$ resistance level around N160/$1."

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