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The naira traded near its strongest level in over a month as Nigeria’s central bank stepped into the foreign exchange market to sell dollars.
The naira rose 9,7 percent on Monday to trade at 1 339,33 per dollar, closing at the firmest since April 26 and posting its biggest one-day move since mid-January. It slipped Tuesday above 1 400 per dollar in intra-day trade on the currency platform operated by Lagos-based FMDQ Exchange, according to two traders in Lagos.
Authorities intervened on Monday and were again in the market on Tuesday, according to two people with knowledge of the matter. The central bank did not immediately respond to a request for comment.
“The central bank dollar sales and OMO auction” helped to strengthen the naira, said Olaolu Boboye, an analyst at asset manager CardinalStone in Lagos, referring to the central bank’s open market operations.
Dollar liquidity had surged on Friday as the central bank’s sale of one-year paper attracted flows. The sale of 1,143 trillion naira (US$800 million) worth of bills at a 22,49 percent yield, more than doubled liquidity in the foreign exchange market to US$556 million.
However, that liquidity surge was not sustained into Monday, when the volume of dollars sold in the market declined to US$181 million despite the central bank intervention.
The central bank is currently selling hard currency in the range of 1,260 to 1,320 per dollar, well off the current exchange rate below 1,400, according to Samir Gadio, head of Africa strategy at Standard Chartered Bank.
The sales are taking place ahead of Wednesday’s maturity of a US$1,3 billion futures contract, he noted.
“The rationale may be to contain and pre-empt a potential increase in dollar demand in the coming days,” Gadio said. It is also “conceivable” that there could be another bill sale to offset the impact of the expiring contract, he said.
The naira has been volatile since mid-April, reversing most of the gains made in March on the back of improved dollar inflows.
It is among the worst performing currencies monitored by Bloomberg in the last month, having been the top performer in March. — Bloomberg.
Online Reporter