TRADING in Nigeria’s foreign exchange (FX) market nearly doubled in the week ended October 9, reaching $3.37 billion as spot transactions rebounded sharply after a steep decline in the previous week.
Data from FMDQ shows that total FX turnover rose from $1.70 billion in the week ended October 2 to $3.37 billion, an increase of $1.67 billion or 98.58% percent.
The recovery followed a 35.41 percent drop in turnover in the preceding week, bringing trading activity close to the $3.39 billion recorded in the week ended September 11.
However, the increase in transactions does not necessarily mean that dollars have become more readily available to businesses or that the naira is set to appreciate. The sustainability of the rebound will depend on the sources of foreign currency supply and the strength of underlying inflows.
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Spot transactions drive recovery
Spot transactions accounted for most of the increase in turnover, rising 98.37 percent from $1.63 billion to $3.24 billion during the reporting week.
These transactions involve buying and selling foreign currencies at prevailing exchange rates for near-immediate delivery. They are commonly used by banks, importers, exporters and other market participants to meet their foreign currency obligations.
The increase in spot trading added about $1.61 billion to turnover, making it the main driver of the market’s recovery.
Average daily FX trading also increased to $673.97 million from $424.24 million in the previous week, indicating stronger activity during the period.
The figures suggest a substantial rebound in reported transactions, although turnover alone does not establish whether the improvement came from greater dollar supply, stronger demand or a combination of both.
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Forward transactions more than double
Forward transactions also recorded a sharp increase, although they remained a relatively small part of the market.
FMDQ data shows that forward trading rose 103.85 percent to $131.95 million from $64.73 million in the previous week, representing an increase of approximately $67.22 million.
Forward contracts allow buyers and sellers to agree on an exchange rate for a currency transaction to be completed at a future date. Businesses can use them to reduce uncertainty over the naira cost of future payments to overseas suppliers.
Despite the increase, forwards accounted for only 3.92 percent of total turnover, while spot transactions represented 96.08%.
The data does not show whether the increase in forward activity reflected greater demand for currency hedging, changes in investor positioning or other trading strategies.
READ ALSO: FX, OMO bills drive FMDQ turnover to N426.5tn in 7 months
Turnover returns close to September peak
The latest figures show that foreign exchange trading has recovered from the weakness recorded at the beginning of October.
Turnover stood at $3.39 billion in the week ended September 11 before falling in subsequent reporting periods. It dropped to about $1.70 billion in the week ended October 2, before rebounding to $3.37 billion in the latest week.
The sharp swings highlight the volatility of reported trading activity in the market.
For businesses that depend on imported raw materials, machinery and finished goods, sustained improvements in foreign exchange liquidity could make it easier to settle international payments. But the benefit depends on whether additional trading activity translates into more reliable access to dollars and less uncertainty over exchange rates.
Analysts warn on sustainability of inflows
Cordros Securities, in its weekly economic and market report for the week ended October 9, said the near-term outlook for foreign exchange inflows would depend on the resilience of foreign portfolio investment and a recovery in domestic inflows.
The firm identified domestic sources of foreign currency supply, including transactions involving the Central Bank of Nigeria, individuals, non-bank corporates and exporters and importers.
It also warned that lower domestic yields and persistent geopolitical tensions could reduce the attractiveness of naira-denominated assets to foreign investors, potentially weakening portfolio inflows and putting pressure on foreign exchange liquidity.
The warning points to a key risk for the market: a rebound in turnover may not be sustained if the underlying sources of dollar supply weaken.
Foreign portfolio investors can provide substantial foreign currency when they bring funds into Nigerian assets. However, these flows can also reverse when yields become less attractive or global financial conditions deteriorate.
