Follow Us on Google
By Chinwendu Obienyi
Nigeria’s foreign-exchange market recorded a sharp slowdown in trading activity in the week ended December 22, with total turnover falling almost a third as liquidity conditions tightened toward the year-end.
Data from FMDQ Securities Exchange show that combined turnover in the FX spot and derivatives segments dropped by 29.03 per cent week-on-week (w/w) to $1.34 billion, from $1.89 billion in the previous week.
The contraction was largely driven by a steep decline in spot market activity, where volumes slid 27.51 per cent to $1.34 billion from $1.85 billion recorded in the week ended December 19.
The drop in spot transactions accounted for more than 90 per cent of the overall decline, highlighting reduced appetite by banks and their clients to trade the naira amid constrained dollar supply and seasonal demand patterns. FX derivatives activity also dried up completely, with no forwards or other derivatives trades executed during the review week, compared with $39.69 million recorded in the prior period.
Market participants say the slowdown reflects year-end liquidity management by corporates and financial institutions, many of which have already closed their books and are delaying large FX positions until the new year. Trading desks also scaled back activity ahead of the Christmas holidays, when staffing levels are typically thin and risk appetite wanes.
The FX market is usually quieter in the final weeks of December, but the scale of the decline this year suggests that dollar availability remains a major constraint. Most banks are simply matching essential demand rather than taking proprietary positions”, traders told Daily Sun.
The naira has remained under pressure in recent months despite efforts by the Central Bank of Nigeria (CBN) to improve transparency and boost supply through reforms to the official market framework. While official exchange-rate data were not released alongside the turnover figures, traders say wide bid-offer spreads and patchy liquidity continue to limit volumes, especially for larger tickets.
The naira had closed at N1,443.38/$1 and N1,490/$1 at the official and parallel markets, respectively before the Xmas and boxing holidays.
Analysts note that the disappearance of derivatives trades underscores lingering uncertainty about the currency outlook. FX forwards, which are typically used by importers and offshore investors to hedge currency risk, have been thinly traded since the middle of the year as counterparties struggle to agree pricing benchmarks in a volatile market.
“Derivatives activity is a good proxy for confidence. When corporates and investors stop hedging, it usually means they are unsure about where the currency is headed, or they simply cannot access enough dollars to justify forward cover”, they said.
The slowdown comes at a time when Nigeria is seeking to attract portfolio inflows to support its balance of payments and rebuild foreign-exchange reserves. According to traders, sustained weakness in FX turnover could make it harder for authorities to achieve their goal of a more liquid and transparent market.
While some rebound is expected in January as businesses reopen and pent-up demand returns, traders caution that volumes are unlikely to recover meaningfully without a material improvement in dollar supply. For now, the sharp week-on-week fall in spot market activity serves as another reminder of the fragility of Nigeria’s FX liquidity as the year draws to a close.
