Naira Gains Against US Dollar, Faces Uphill Task At N1,500 Resistance Line

The Naira strengthened against the dollar on Friday, trading at N1,585/$ from N1,590/$ posted on Thursday in the parallel market.

On the Nigerian Autonomous Foreign Exchange Market (NAFEM), the Naira strengthened to N1,574 against the greenback yesterday.

FMDQ data revealed that the NAFEM’s indicative exchange rate decreased to N1,574.2 per dollar on Thursday from N1,593.62/$, signifying a N19.4 appreciation for the local currency.

The market’s dollar volume increased by 127.5 per cent to $323.11 million compared to Thursday’s trading volume of $142 million. The FX market’s price action confirms that the Naira bulls have managed to keep the US dollar off the N1,600 levels this week.

However, a breakthrough in the N1,500 crucial resistance line is required to restart a bullish momentum.

Market analysts have long held that the local currency would not be able to sustain gains in the absence of a corresponding fiscal policy move. Petrol subsidies have increased pressure on the local currency, and Nigeria’s oil output, which is a significant source of foreign exchange earnings, has been at best mediocre, underscoring the need to diversify the economy and intensify fiscal discipline

The CBN recently established an extra mechanism through the Retail Dutch Auction System (RDAS) to facilitate FX sales to end users directly, in keeping with its commitment to provide transparent access to foreign exchange for all eligible customers.

The strategy promotes a more transparent market by lessening information asymmetry and promoting price discovery. The two-way quote system used in recent months was mainly to increase interbank market liquidity.