The Naira’s Five-year non-deliverable forward contracts rose by a record 27% to N569.69 on Thursday, while contracts with shorter maturities climbed higher, suggesting that investors believe the CBN’s buffer will remain too thin to support the naira.
The one-year forward price, which indicates where the currency could trade in a year, fell 7% against the dollar at N421.22/$ and price for contracts due July rose by 1.4% as Naira weakened by N5.47 to N395.12/$.
The 5-year non-deliverable forward contracts rose by N156.33 to close at N569.69, which means investors also see a weaker naira by 2025.
An NDF is a cash-settled forward contract where parties agree to a rate/price for a predetermined date in the future, without the obligation to deliver the notional amount on maturity.
The NDF is settled at maturity for the difference in the Spot FX rate and the NDF rate.
Amid sustained low oil prices, analysts say the naira might be further devalued despite a weakening of the currency in March which saw official rate depreciate from N307/$ to N360/$, and the CBN selling naira to FPIs at N380.2/$ from N366.7/$ in the I&E windows.
In the parallel market, the naira reached its weakest level in three years at N460/$ last week, although price has moderated to N437/$ levels.
