Nigeria’s foreign exchange reserves dropped by $47.33m to close at $35.77bn.
Crude oil price declined by 4.4 per cent from $43.68 to $41.74 amid fears upsurge in COVID-19 cases might trigger a new wave of economic lockdowns.
Senior Research Analyst, FXTM, Lukman Otunuga, said oil prices would likely remain stuck around the $40 region in the near term, especially if another round of possible lockdowns hit oil demand.
He noted that oil prices had continued to be heavily influenced by demand-side factors and the state of the global economy.
“Looking at the technicals, WTI Crude is under pressure on the daily charts. If prices are unable to break away from the sticky $40 region, the next key point of interest remains around $38. A weekly close above $41.50 could pave a path towards $43,” Otunuga said.
He noted that a steady rebound by dollar might put pressure on the naira and further exacerbate the foreign-currency-denominated portion of Nigeria’s public debt stocks.
“In times of uncertainty, everyone wants a juicy piece of the world’s most liquid currency. As coronavirus cases rise in Europe and other parts of the world, the flight to safety is likely to boost appetite for the dollar.
“This is bad news for many emerging markets currencies, especially those with high dollar-denominated debt,” Otunuga added.
Analysts at Cordros Group said the naira might depreciate further in the medium-to-long term, citing widening current account position, currency mispricing, which could induce speculative attacks on the naira, and the resumption of forex sales to the bureau de change segment, which should place additional pressure on the reserves.
Central Bank of Nigeria has offered over $200m to bureaux de change since the resumption of forex sales to the segment. Last week, CBN sold $100m through the Secondary Market Intervention Sales Wholesale Window to boost liquidity levels and maintain stability in all segments of the market.
