The naira maintained the N1500 bandwidth against the dollar at the parallel market, while the U.S. dollar index broke higher than 105 index points.
The local currency’s upside has been tamed by Nigeria’s high inflation readings despite a hawkish CBN.
The local currency has lost more than two-thirds of its value since last year.
NBS data showed Nigeria’s core price growth, which does not include energy or agricultural products, accelerated to 27% from 26.8% in May, while food inflation climbed from 40.3% in April to 40.66% in May.
Nigeria’s headline inflation rate is anticipated to persist due to ongoing food supply shocks, high demand from the Eid-Mubarak festive period, and the upcoming increase in the minimum wage.
The naira’s rapid decline has also caused food import costs to rise. Nigerian importers pay high tariffs on food products, yet the country’s economy is mostly dependent on imports.
Certain commodities prices have increased even more due to higher levies brought on by the naira’s depreciation.
Macros favour Nigeria’s FX market
However, market fundamentals affirm that the naira is unlikely to fall to its lowest point in February, at least not this month, partly because of the apex bank’s latest measures.
The CBN established a special account with $2.9 billion to support the nation’s unsteady foreign exchange market.
The disclosure came as a result of the FAAC Post Mortem Sub-Committee members noticing that money from royalties and Production Sharing Contract (PSC) taxes sales were moved to the Gazelle Funding account in the Nigerian National Petroleum Company Limited (NNPCL) report from last month.
The transfer of an additional $925 million for Nigeria’s oil-backed prepayment facility into the Project Gazelle Funding account was announced by the African Export-Import Bank (Afreximbank) on June 6.
Originally, the Nigerian National Petroleum Company Limited (NNPCL) provided funding for this project.
The $2.25 billion World Bank loan that Nigeria received to stabilize the economy and provide greater assistance to the poor and most vulnerable will increase the availability of dollars and strengthen the weak naira.
The euro steadied after a politically motivated slip last week.
On Tuesday, traders bet on the U.S. retail sales report and comments from Federal Reserve officials to help forecast when interest rate reductions will occur.
The U.S. dollar index, which evaluates the strength of the greenback against six significant competitors, rose to 105.46 recently, up 0.18%. On Monday, it fell 0.2% from the six-week high of 105.4 set on Friday.
The greenback hit levels in the 105.8 range last seen in early May during the recent week.
The reappearance of political unease in the European region and the likelihood that the tighter-for-longer narrative surrounding the Federal Reserve will continue to hold sway over the index helped it rise for the second straight week.