Naira Strengthens as CBN Prepares Automated FX Platform Trial

Amid rising dollar liquidity and controlled FX demand, the naira gains value ahead of the Central Bank’s FX automation trial

In a sign of increased dollar liquidity and moderated demand, the naira has shown a notable recovery ahead of the CBN FX automation trial. Closing at N1,600 per US dollar in the official market, the naira appreciated by 0.07% this week, reflecting a temporary easing in the demand for foreign currency.

Despite limited FX sales to authorized dealer banks, the exchange rate demonstrated resilience in the lead-up to the Central Bank of Nigeria’s upcoming FX automation test run set for November. However, the naira faced challenges in the parallel market, depreciating to N1,730 against the dollar due to ongoing pressure from “invisible” foreign exchange payments and restricted supply. Data from the FMDQ platform highlighted a daily gain for the naira at the official rate, with a spot rate of N1,600 to the dollar.

On Friday, the foreign exchange market experienced an increase in total turnover, reaching $284.93 million compared to Thursday’s $230.99 million. At the Investors and Exporters (I&E) window, the naira fluctuated within a range of N1,682 to N1,589.82, underscoring mixed sentiments ahead of the CBN FX automation trial.

As part of its move towards a market-driven exchange rate model, the Central Bank has committed to automating foreign currency trades from December, a shift from its longstanding over-the-counter system. The CBN’s new guidelines, released in early October, emphasize enhancing market transparency and eliminating speculative trading and distortions.

“The new FX automation system is designed to curb market speculation, mitigate distortions, and strengthen the Central Bank’s regulatory oversight,” the CBN announced in a circular dated October 2. The Central Bank confirmed a two-week trial period for the automation system in November, though exact dates remain unspecified.

While the oil market anticipates a 2% weekly price increase amid Middle Eastern tensions, gold prices have softened as investors capitalized on recent gains spurred by geopolitical and U.S. election uncertainties. Brent crude trades at approximately $75.82 per barrel, while West Texas Intermediate (WTI) stands around $71.59.