Naira to depreciate slightly over $1.52 billion forward contracts

Currency traders are expecting the naira to fall slightly today, due to a maturing $1.52 billion April 29 forward contract.

Bosun Obembe, an FX and Derivatives Trader at Access Bank, told CNBC Africa yesterday why the weakening of the naira was expected.

He explained how the naira depreciated at about 20kobo at the investors’ and Exporters window yesterday to close at N386.45 from the previous day’s closing of N386.25. He said :

“Customers with Non-Deliverable Futures will need to buy dollars to claims settlement credit, given that all the contracts settled in the money.

“The additional demand from the contract will exacerbate the already thin inflow in the Investors & Exporters market; as such, the naira will weaken though it’s likely to remain below N390 to $1.  Most currency traders are trading within the band N380-390 to the dollar.”

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Note that the forward market is an OTC (Over the Counter) market platform that sets the price of a financial instrument or asset for future delivery designed in contracts. Forward markets are used for trading a range of financial instruments, especially in the currency market.

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The naira has been under pressure in recent days, as Brent crude price plunged more than 8% WoW to $24.23 barrels per day as at 8.59 am local time, while Nigeria’s foreign exchange reserves further dropped by 0.1% to $33.6 billion.