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Currencies

Naira remains stable as traders and speculators remain in state of flux

Forex traders are wondering what next from the CBN.

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Naira Exchange Rate

The naira depreciated against the dollar at the Investors and Exporters (I&E) window on Monday, closing at N386.50 to a dollar, compared to the N386 to a dollar that was reported on Friday, July 3, representing a 50 kobo drop. This is as traders mulled over reports that the CBN had adjusted the exchange rate at the SMIS window. The opening indicative rate was N387 to a dollar on Monday. This represents a 14 kobo drop when compared to the N386.86 to a dollar opening rate that was recorded last week Friday.     

At the black market where forex is traded unofficially, the naira remained stable as it closed at N461 to a dollar on Monday which was the same rate that it exchanged last week Friday. Speculators appear to be uncertain about what next to do, as they do not know what other moves the CBN has in the offing.

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 has set plans in motion to unify the multiple exchange rates in line with requirements from the World Bank. Nigeria is seeking a world bank loan of up to $3 billion.   

READ ALSO:  Equities: CBN’s heterodox policies is driving domestic investors’ to the stock market.

Forex Turnover  

Forex turnover at the Investor and Exporters (I&E) window recorded a decline on Monday, July 6, 2020, as it dropped by 90.3% day on day, a major decline from the figure that it achieved on Friday at the foreign exchange market. 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 decreased from $105.05 million on Friday, July 3, 2020, to $10.15 million on Monday, July 6, 2020, representing a 90.3% decline on a day-to-day basis. This is a reversal from the impressive turnover that was recorded the past 2 days and a far cry from the $200 million mark that was in January and last week.  

The very low liquidity puts a lot of pressure on the foreign exchange market.     

READ MORE: Quick Take: SWOT analysis of Nigeria’s financial sector according to Fitch Solutions

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Forex Liquidity Issues 

The volatility and uncertainty of the forex market still persist due to accumulated demand and liquidity shortages across markets.  The rise in demand and contrasting drop in supply has called for another round of devaluation, which the CBN has insisted it had plans to implement.  

The CBN on Friday adjusted the naira at the retail forex auction from N360 to a dollar to N380 to a dollar in a move that most analysts see as part of the plans to unify the exchange rate of the Naira. A devaluation last occurred in March. The apex bank wants to unify the exchange rate to conserve the dwindling external reserves which have been hard hit by demand by ever-increasing importers and the foreign investors wishing they exit the country.  

British airways

This current step taken by the CBN has moved the retail auction for importers and individuals, which is the official rate closer to the over-the counter-spot for investors and exporters. Nairametrics spoke to some traders who are still reviewing what the latest move by the CBN could mean on the future price of forex. Whilst some believe this is a major step towards reunification others believe the real test of the value of the exchange rate could be when the economy finally opens. For now, projection is all speculation, one trader informs Nairametrics.     

The CBN still continues to warn against currency speculators who patronize the black market, thus widening the gap between it and the I&E window. The CBN maintains that the perceived demand cannot be substantiated following the drop in economic activities induced by the COVID-19 pandemic suggest demand should be low due to travel restrictions and drop-in economic activities.     

READ ALSO: Nigeria’s Foreign Portfolio investment to crash by $11.4 billion in 2020- IMF

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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.  

The pressure in the forex crisis is compounded by the continuous slide in the external reserve which dropped to $36.19 billion as of June 29, 2020. This represents a drop of about $400 million within a month when compared to the $36.59 billion that it was as of May 29, 2020. 

According to a report from Reuters, the confusion in the foreign exchange market continued as currency traders refused to quote prices for the naira at the official market during retail auction amid confusion about the impact of the CBN’s exchange rate adjustment. 

 

 

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Chike Olisah is a graduate of accountancy with over 15 years working experience in the financial service sector. He has worked in research and marketing departments of three top commercial banks. Chike is a senior member of the Nairametrics Editorial Team. You may contact him via his email- [email protected]

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Currencies

CBN to sanction banks, BDCs for rejecting old, smaller denomination of US dollars

The CBN cautioned forex dealers to desist from defacing or stamping dollar banknotes as such notes always failed authentication tests during sorting.

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The Central Bank of Nigeria (CBN) has ordered Deposit Money Banks (DMBs) and Bureau De Change (BDC) operators to, henceforth, accept from their customers, old and lower denomination of US dollars as legal tender or face sanctions.

This follows numerous complaints from members of the public on the rejection of old/lower denominations of the dollar by these banks and other authorised forex dealers.

The CBN directive is contained in a circular signed by its Director for Currency Operations Department, Mr Ahmed Umar.

Umar, in his statement, said that the apex bank had been faced with complaints of the rejection of old/lower denomination US dollar deposits in the banks, adding that the CBN would sanction any of the banks or forex dealers, who failed to accept such denominations from their customers.

What the CBN’s Director of Currency Operations is saying

Ahmed said, “The CBN has, in recent times, been inundated with complaints from members of the public on the rejection of old/lower denominations of the US dollar bills by DMBs and other authorised forex dealers. All DMBs and authorised forex dealers should, henceforth, accept both old series and lower denominations of USD that are legal tender for deposit by their customers.

“The CBN will not hesitate to sanction any DMB or other authorised forex dealers who refused to accept old series or lower denominations of the USD bills from their customers,” he warned.

He also cautioned forex dealers to desist from the habit of defacing or stamping dollar banknotes as such notes always failed authentication tests during sorting.

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Currencies

Naira falls against US dollar as external reserves plunges

The naira depreciated against the US Dollar at the Investors and Exporters window on Tuesday to close at N410.67/$1.

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Exchange rate depreciates at NAFEX window as forex liquidity drops further by 57%, Central Bank Continues intervention in Forex market to stabilize Naira, Naira to depreciate slightly over $1.52 billion maturing contracts expires, Naira hits N388.84 to $1 at the currency spot market, Investors and Exporters (I&E) window, Naira weakens against the dollar by 1.14% amidst uncertainty, Naira gains against the dollar at I&E window, forex liquidity up by 242%  

Tuesday, 20th April 2021: The exchange rate between the naira and the US dollar closed at N410.67/$1 at the investors and exporters window, where forex is traded officially.

Naira depreciated against the US dollar to close at N410.67 to a dollar on Tuesday, 20th April 2021. This represents a 0.08% decline when compared to N410.33/$1 recorded on Monday, 19th April 2021.

Naira also declined against the US dollar in the parallel market on Tuesday, as it closed at N486/$1, representing 0.83% depreciation compared to N482/$1 recorded on Monday, 19th April 2021.

Nigeria’s foreign reserve dipped for the first in about 19 days, as it declined by 0.1% to stand at $35.22 billion.

Trading at the official NAFEX window

The naira depreciated against the US Dollar at the Investors and Exporters window on Tuesday to close at N410.67/$1. This represents a 34 kobo decline when compared to N410.33/$1 recorded on Monday, 19th April 2021.

  • The opening indicative rate closed at N409.5 to a dollar on Tuesday. This represents a 50 kobo depreciation, compared to N409/$1 recorded the previous day.
  • Also, an exchange rate of N437.41 to a dollar was the highest rate recorded during intra-day trading before it closed at N410.67/$1. It also sold for as low as N381/$1 during intra-day trading.
  • Forex turnover at the Investor and Exporters (I&E) window improved by 42.7% on Tuesday, 20th April 2021.
  • A cursory look at the data tracked by Nairametrics from FMDQ showed that forex turnover increased from $69.71 million recorded on Monday, April 19th, 2021, to $99.49 million on Tuesday.

Cryptocurrency watch

The world’s most sought-after digital asset, Bitcoin grew by 1.56% to trade at $56,562.53 on Tuesday, 20th April 2021.

  • Bitcoin increased by $867.98, while Ethereum also grew by 7.96% to trade at $2,336.1.
  • The cryptocurrency had fallen to $52,000 on Sunday, sharply off its record high last week of above $64,800 due to a large sell-off tied to rumours of a regulatory crackdown in the US.
  • It is worth noting that Bitcoin has risen by 680% in the past 12 months.

Crude oil price slumps

Crude oil prices slumped on Tuesday, 20th April 2021 as Brent Crude dipped by 0.72% to close at $66.57.

  • The decrease could be attributed to the growing cases of the covid-19 disease in most European countries.
  • According to reports, Funds have cut their positions across the six major oil contracts for two out of the last three weeks, given the pandemic situation and the persistent uncertainty around jet fuel demand recovery.
  • Oil prices had posted modest gains in the early hours of Tuesday following reports of an outage in Libya. However, demand concerns sent prices falling to close at $66.57.
  • Brent Crude closed at $66.57 (-0.72%), WTI Crude closed at $62.44 indicating 1.48% decline, Bonny Light, $65.17 (-0.12%), OPEC Basket (-0.17%) to close at $65.1 while natural gas also dipped by 0.29% to close at $2.719.

External reserve

Nigeria’s external reserve decreased by 0.1% on Monday, 19th April 2021 to stand at $35.22 billion.

  • Nigeria’s foreign exchange reserve dipped for the first time in 19 days, after enjoying positive growth since the 18th of March, 2021.
  • The recent increase had been attributed to the increase in the price of crude oil after enduring a significant price crash in 2020.
  •  The CBN policy on diaspora remittances might have contributed to the recent positive movement in Nigeria’s external reserve.
  • Meanwhile, the Central Bank of Nigeria has ordered Deposit Money Banks (DMBs) and Bureau De Change operatives to accept old and lower denominations of dollars from their customers as legal tender or face sanctions.

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