Nigeria’s fluctuating FX market: A look at what affects these changes

Nigeria's fixed income market has experienced a mixed week with fluctuating trading activities, according to FEMI Ogundimu, a fixed income trader at Access Bank. The week commenced with high sensitivity across the fixed income market, particularly affecting bonds and treasury bills. Sellers dominated the treasury bills market, leading to an increase in yields from 10% to 12.5%. A similar trend was observed in the bonds market, with a heightened interest in long-term maturity bonds. However, the wide bid and offer spread made it challenging for investors to transact, resulting in a more cautious approach. The Chinese government's recent devaluation of the Yuan to about 7% also garnered attention, impacting Nigeria's economy due to China's significant global influence on goods and services. The devaluation could potentially lead to increased inflow of Chinese goods into Nigeria, affecting the foreign exchange market and causing pressure on the local currency. Furthermore, the ongoing trade tensions between the US and China pose a risk to Nigeria's exchange rates, potentially leading to currency devaluation. However, the Central Bank of Nigeria (CBN) is expected to defend the currency in the short to medium term. Despite an increased demand for foreign exchange at the Investors' and Exporters' (I&E) window, CBN intervention has helped stabilize the FX market. The recent OMO auctions and liquidity injections have impacted local currency rates, albeit with some fluctuations. Yields have exhibited an upward trend both in treasury bills and bonds markets throughout the week, with expectations of further increases in the upcoming weeks due to maturing instruments and prevailing market conditions. Looking ahead, next week's focus will be on the release of inflation figures and the inauguration of ministers. Inflation is currently around 1.2%, with a potential slight increase expected. However, the positive interest margin in the market compared to inflation rates may mitigate the impact on market dynamics. The liquidity system implemented by CBN aims to stimulate lending and investment, possibly influencing inflationary trends. Despite the anticipated market developments, FEMI remains optimistic about the overall stability of Nigeria's financial markets.