December is the month when the naira usually gets stronger in the forex market. So why has it lost approximately 3%-4% in the last week and why are traders and investors getting more jittery?
The external reserves have increased by 0.75% after an extended period of depletion, the price of cocoa is at a high of $2,145 per tonne. This is the season for the main crop harvest and inflows of approximately $429 million are expected.
The visiting friends and relatives of Nigerians control at least 5% of Nigeria Diaspora remittances ($22bn), meaning an inflow of approximately $1.1bn in a six week period.
The price of oil has lost 30% from its high in October but it is still trading at $58pb whilst production is up at 1.8mbpd.
Therefore, why the anxiety and why is the forex market turning into a speculator’s paradise? It all comes down to the political risk premium and investor jitters building up towards an election season.
In the attached bulletin, the FDC Think-Tank takes a deep dive into the exchange rate misalignment and the market conditions that breed multiple exchange rates, speculative activity and arbitrageurs in a thin and inefficient forex market in Nigeria.
Enjoy your read.