Forex turnover at the Investor and Exporters (I&E) window continued with its downward slide on Wednesday, July 1, 2020, as it dropped by 28% day on day. This is according to data from the FMDQOTC, an exchange where forex is traded by foreign investors and exporters.  

According to the data tracked by Nairametrics, forex turnover fell from $14.37 million on Tuesday, June 30, 2020, to as low as $10.37 million on Wednesday, July 1, 2020, representing a 28% drop on a day-to-day basis. This is a second consecutive day of decline this week and also the lowest turnover recorded in the I&E window since last week.  

This further reinforces the volatile and uncertain nature of the foreign exchange market with trading volumes apparently irregular and piling pressure on the exchange rate at the NAFEX market and by extension the parallel market.   

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Forex Liquidity Issues.

The volatility and uncertainty of the forex market seem to persist due to liquidity shortages across markets.  Liquidity remains quite tight in the foreign exchange market, with the average turnover in the I&E market significantly down to about $45.5 million in the month of May compared to $297.5 million that was recorded in January.  

As we have so often reported, accumulated demand for forex in the market is thought to range between $1.5 and $5 billion depending on which analyst you are speaking to. Forex shortages have persisted since the crash in oil prices coincided with the global lockdown due to COVID-19. The rise in demand and contrasting drop in supply has called for another round of devaluation, which the CBN has insisted it has plans to implement. A devaluation last occurred in March. The activities of the speculators seem to have continued unabated.  

Speculators have thus patronized the parallel market, otherwise known as the black market, thereby widening the gap between it and the I&E window. The CBN maintains that the perceived demand cannot be substantiated as the lockdown induced by the COVID-19 pandemic suggest demand should be low due to travel restrictions and drop-in economic activities.  

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The further decline in liquidity could further fuel speculations in the black market where the exchange rate has traded at a premium of N60+ over the last few weeks. The CBN claims most of the demand being cited is not represented by any official documentation and that it has informed foreign investors with genuine forex demand to be “patient” and that they will get their forex. 

Exchange rate    

In related news, the exchange rate at the I&E remained stable on Wednesday, closing at N386.50 to a dollar, which was the same rate that was recorded on Tuesday, June 30. The opening indicative rate was N387.08 to a dollar on Wednesday. This represents a loss of 2 kobo when compared to the N387.10 opening rate recorded on Tuesday.  

At the black market where forex is traded unofficially, the naira depreciated further by N2 to a dollar to close at an all-time low of N462 to a dollar on Wednesday, as against the N460 to a dollar on Tuesday, the lowest Naira value in 3 years. The exchange rate at the beginning of the week was N460 to a dollar. By crossing N460, the exchange rate has broken a psychological ceiling going past N460 for the first time ever.  

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Nigeria continues to maintain multiple exchange rates comprising the CBN official rate, the BDC rates, and the NAFEX (I&E window). Nairametrics reported last week that the government is mulling unifying the multiple exchange rates in a bid to increase the amount available for state governments to share.  

The depreciation of the Naira in the black market can be attributed to the shortage of dollar supply which is outweighed by demand as that puts further pressure on the forex market. The negative impact of the coronavirus pandemic on global oil prices has constrained the CBN’s capacity to intervene satisfactorily in the foreign exchange market as dollar inflow has slumped. 

The forex scarcity and drop in revenue put pressure on the value on the naira despite CBN’s effort to maintain stability across the forex segments. The CBN is expected to continue with its intervention in the foreign exchange market to ensure market stability. 

Correction: An earlier version of this article indicated the naira fell to “an all-time low”. This has now been corrected as the exchange rate fell to a 3 year low. The exchange rate at the black market fell to over N500/$1 in early 2017.