Nigeria’s currency futures market volumes drop on rate convergence
The recent improvements in foreign currency liquidity at the Nigerian foreign exchange market have ironically affected volumes at the nations’ currency futures market, according to financial analysts and data obtained by Businessamlive.
Findings reveal that the volume of trade in the Nigerian currency futures market has dropped dramatically since the Central Bank of Nigeria (CBN) came up with the Investor & Importers FX rate window, which has tend to converge the various FX rates at around around N370/$.
According to analysis of open interest report conducted by Quantitative Financial Analytics, the average daily volume for currency futures was 34.955 contracts or $34.95 million in April as against corresponding average for March at 14.5 contracts or $14.486 million.
Equally, the daily average tapered to just 8.41 contracts in May. On day count basis, the market had witnessed daily activities on at least 15 of each month’s 22 trading days in the past but so far in June, only 3 of the 14 trading days witnessed any activities.
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The slowdown in volume has been so apparent that the Naira-Dollar (NGUS) MAY 30, 2018 contract which replaced the NGUS MAY 24, 2017 that matured on May 24, has not attracted a single trade ever, an unusual and unprecedented occurrence.
Stakeholders believe that though average daily volume has fallen since April, if things continue the way they are, June’s trading activity may be the least in the history of the currency futures market in Nigeria.
But the recent report by Fitch, has been that are some improvement in FX liquidity in Nigeria following massive interventions by the CBN and the introduction of the NAFEX window.
Good as this improvement is, it does appear that it has or is killing the incentive to use the currency futures market and analysts wonder if some of the CBN policies are becoming surviving at the expense of others.
The currency futures market analysts said, should not be allowed to die because such markets play vital roles in both price discovery and risk management, among others
Currently, the Nigeria Autonomous Foreign Exchange (NAFEX) rate is about N368/$, while most of the futures open contracts have contract prices of about N374/$ and the parallel market settles at about N370/$, all pointing to a convergence of some sort.