On Wednesday, the price of the dollar dropped to as low as N270. Ok scratch that, it dropped to as low as N290. No scratch that too, it dropped to as low as N310. I am confused!
I bet you are confused too! Don’t worry even parallel market operators are confused! No one knows the true price of the dollar and this is even causing a lot more panic for buyers and sellers. Analysts speculate a lot of the demand and supply currently available are phantom and does not represent reality. What you see are people quoting prices over the phone with no underlying transaction to achieve a realistic price. For transactions that have been consummated, some believe it is for and against the buyer depending on information asymmetry.
My Aboki, Buzu seemed to agree too. He tells me a lot of the guys quoting prices don’t actually have the dollars and that the current situation pose a disturbing trend to him and his fellow traders. “This market taya me, me sef don taya. Na only CBN fit save am”. Interpreted as I am tired of the market and it is only the CBN that can save it.
So I asked him how much he thought the dollar was at his own end and he says with the faintest assurance that it is N360. Even he wasn’t so sure. I asked him if I should buy now and he says “Ugo make you no buy oh”. Ugo do not buy. He explains that the price will likely crash further to under N300 as there are a lot of speculators who are still holding on to dollars.
Surely his advice came without an empirical reason and could probably be just be a “guestimate”. As a consolation, even hardcore economist could not predict the sharp fall of the price of the dollar this week. No one seems to know to what direction we are headed. Economic fundamentals of lower oil prices still remains, external reserves are low and CBN still has billions of dollars in unmet demand. So maybe the price could depreciate further
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On a flipside, the economy is faltering and people have lost jobs. Aggregate demand for goods and services are expected to fall as purchasing power has been eroded. It will therefore be foolhardy for importers to continue to import at the same volumes. Even if imports are not down despite falling aggregate demand, the fact that the naira has depreciated by over N100 in the past few weeks means some importers can no longer afford to import as much as they used to. The only demand that might not go away so soon is probably coming from salary earners who are speculating or those looking to stash up dollars for their personal use.
Volatility presents a superb opportunity to make super profits and those who are good at it may carry on. If you are like me who can’t play this FX volatility game, then be best to stick to Buzu’s advice. He promised to tell me when to buy again.
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