Naira weakens as dollar extends gains against top currencies

Naira depreciated against the U.S dollar at the Investors & Exporters (I&E) window of the foreign exchange market on Thursday, data posted on the FMDQ Security Exchange webpage where currencies are officially traded showed.

The local unit closed at N394.33 at the Thursday trading session, representing N0.08 or 0.02 per cent decrease from N394.25, the rate at which it closed at the previous session.

The fall happened as turnover dipped by 27.04 per cent, with $37.58 million recorded as against the $51.51 million posted on Wednesday.

On the spot market (I&E window), naira hit an intraday high of N388.00 and a low of N395.00 before closing at N394.33

However, the domestic currency (naira) again closed at N478 to a dollar at the parallel market on Thursday, the same rate it exchanged hands with the greenback in the previous session, data harvested from abokiFX.com, the webpage that collates parallel market rates in Lagos showed.

That leaves a spread of N83.67 between the unofficial market and the I&E window exchange rates, which translates to a gap of 21.23 per cent.

The CBN’s official rate on Thursday was still N379 per dollar.

“Rising Dollar”

Globally, the dollar extended gains against most currencies on Thursday as a stock market rout triggered by concerns about excessive valuations boosted safe-harbour demand for the U.S. currency.

The euro nursed losses after a European Central Bank member warned that interest rate cuts are possible to curb the common currency’s recent gains.

The Australian and New Zealand dollars, two currencies considered a barometer of risk appetite, also fell against their U.S. counterpart in a sign of waning market confidence.

Concerns about a short-squeeze among hedge funds, worries about corporate earnings, and delays in coronavirus vaccinations have slammed the brakes on a heady rally in global equities, which could continue to lift the dollar in the short term.

“Risk aversion supporting the dollar is a healthy correction after a one-way rise in risk assets,’’ said Masafumi Yamamoto, Chief Currency Strategist at Mizuho Securities.

“The base scenario of economic acceleration in the second half of the year remains intact.

“The Aussie will recover but the euro will struggle.’’

The dollar edged up to 104.27 yen following a 0.4 per cent gain on Wednesday.

Against the euro, the dollar stood at $1.2094, close to a one-week high.

The British pound fell for a second consecutive session to $1.3673.

The dollar index stood at 90.742, holding onto a 0.6 per cent gain on Wednesday.

Asian stocks were awash in a sea of red and futures pointed to a weak start to European trade on Thursday after U.S. stocks suffered their biggest one-day percentage drop in three months on Wednesday.

In addition to concerns about corporate earnings and the economic outlook, worries that hedge funds squeezed out of short positions in GameStop Corp and similar companies will take profits on other assets also fuelled risk aversion.

The U.S. Federal Reserve kept monetary policy unchanged as expected on Wednesday.

But it did signal some concern about the pace of economic recovery, which some traders said is another negative factor.

The U.S. gross domestic product data is due later on Thursday to gauge the strength of the world’s largest economy as it struggles with the coronavirus pandemic.

The onshore yuan briefly touched a one-week low of 6.4946 per dollar and other Asian currencies also fell against the dollar, highlighting strength in the greenback.

The Australian dollar fell to $0.7634 while the New Zealand dollar slid to $0.7135 as investors sold currencies with close ties to the global commodities trade to trim riskier positions.