FX market sees significant decline in turnover amidst rising Dollar value
The Nigerian foreign exchange market experienced a sharp decline in activity at the start of 2024, with Spot FX market turnover plummeting by 40.46 percent to $4.37 billion (N4.03 trillion) in January, down from $7.34 billion in December 2023.
This substantial month-on-month decrease of $2.97 billion was highlighted in the latest FMDQ Markets Monthly Report.Amidst the market’s downturn, the US Dollar saw a notable appreciation against the Naira.
The spot exchange rate surged by 10.44 percent, moving from $/¦ 897.30 in December 2023 to an average of $/¦ 990.96 in January 2024. This rise reflects a growing pressure on the Nigerian currency, which also faced increased volatility.
The Naira oscillated between $/N838.95 and $/N1,482.57 in January, a stark contrast to the narrower range of $/N806.73 – $/N1,099.05 seen in the previous month.
The Fixed Income (FI) market turnover also took a hit, with a 55.92 percent decline to N7.19 trillion in January 2024, down from N16.31 trillion in December 2023.
This drop was attributed to significant decreases across various instruments, including Treasury Bills, Open Market Operations Bills, Central Bank of Nigeria Special Bills, Federal Government Bonds, and Other Bonds.
Trading intensity for Treasury Bills and Federal Government Bonds saw a decrease, with the most traded sovereign Fixed Income securities being those within the >6M – 12M and >20Y tenors, which accounted for 35.86 percent and 26.52 percent of the secondary market turnover, respectively. Furthermore, the yield spread between the 3-month and 30-year sovereign Fixed Income securities narrowed by 2.97 percentage points to 9.37 percentage points, suggesting a flattening of the sovereign yield curve.
In January 2024, the yield spread between the 3M and 30Y sovereign FI securities decreased MoM by 2.97ppts to 9.37ppts, indicating a flattening of the sovereign yield curve.
According to the report, total turnover in the MM segment decreased MoM by 21.45 percent (N1.54 trillion) to N5.64 trillion in January 2024.
FMDQ noted that the MoM decrease was solely driven by the 21.96 percent (N1.57 trillion) decrease in Repos/Buy-backs, offsetting the 100.00 percent (N0.03 trillion) increase in Unsecured Placement/Takings transactions, respectively.
“The average O/N rate and OPR rate (secured lending rate) decreased MoM by 0.39ppts and 0.76ppts respectively, to close at an average of 17.56 percent and 16.49 percent in January 2024,” it said.
Total turnover in the FX derivatives market segment in January 2024 was $4.56 billion (N4.21 trillion), representing a MoM decrease of 29.52 percent ($1.91 billion) from the December 2023 figures.
The Exchange said that the MoM decreases in the FX derivatives turnover were jointly driven by the 27.67 percent ($1.71 billion), 62.50 percent ($0.15 billion), and 100.00 percent ($0.05 billion) decrease in FX Swaps, FX Forwards and FX Futures transactions, respectively.
In the Cleared Naira-Settled (USD/NGN) Non-Deliverable Forwards market, the near month contract (NGUS JAN 31, 2024) expired and open positions with a total notional value (NV) of $0.57 billion were settled.
However, no new month (60M) contract was introduced in the Cleared Naira-Settled Non-Deliverable Forwards market in the review period.
“As a result, the cumulative NV of open Cleared Naira-Settled Non-Deliverable Forwards contracts decreased for the seventh consecutive month to circa $2.63 billion as of January 31, 2024. “This represents a MoM and YoY decrease of 17.81 percent ($0.57 billion) and 41.56 percent ($1.87 billion), respectively,” it noted.
Total spot market turnover for all products traded in the secondary market in January 2024 was N16.86 trillion, representing a MoM decrease of 43.87 percent (N13.18 trillion) from December 2023 figures.
The MoM decrease in total spot market turnover was jointly driven by a decrease in turnover across all spot market product categories, with contributions by FX, MM, and FI transactions decreasing MoM by 38.47 percent (N2.52 trillion), 21.45 percent (N1.54 trillion) and 55.92 percent (N9.12 trillion), respectively.
The decrease in FI turnover was jointly driven by a MoM decline across all FI products. Similarly, the decrease in MM turnover was solely driven by a decline in Repos/Buy-backs, offsetting the MoM increase in Unsecured Placement/Takings transactions.
