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Currencies

Naira falls to N475/$1, another new low as exchange rate disparity widens

The parallel market exchange rate crashed to a new low.

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Forex, Nafex, parallel market, exchange rate, Naira, Dollar

The dollars changed for the naira as high as N389.25 during intraday trading as it gained slightly at the I&E window as dollar shortages persist. This is according to information on the website of the FMDQOTC.

The week closed with a $38.86 million forex turnover, a marked improvement from an average of $27 million per day recorded last week.

In contrast, the exchange rate at the parallel market fell to a new low after remaining unchanged for four consecutive days as it closed at N475/$1 on Monday, July 27, 2020.

Parallel Market: At the black market where forex is traded unofficially, the Naira depreciated by N3 to a dollar to crash to a new low of N475/$1 on Monday, according to information from Abokifx, a prominent FX tracking website. This is against the N472 to a dollar that it exchanged on Friday last week.

However, some traders contacted by Nairametrics research quoted a price of N473/$1. It is not uncommon to see prices closely different within the market.

READ MORE: Forex turnover at NAFEX hit $1.6 billion since June 2020

Market Watch

NAFEX: The Naira appreciated against the dollar at the Investors and Exporters (I&E) window on Monday, closing at N389.25/$1. This represents a 25 kobo gain when compared to the N389.50 rate close that was reported on Friday, July 24.  The opening indicative rate was N388.10 to a dollar on Monday. This represents an 11 kobo gain when compared to the N388.21 to a dollar that was recorded on Friday.

The naira fell to as high as N390 during intraday trading before strengthening to the closed rate of N389.25. It also sold for as low as N380/$1 during intraday trading. Forex is sold at several prices during the day.

The 0.4% depreciation week on week (it was N388.5/$1 coming into last week) is perhaps attributed to the weaker forex turnover that was experienced last week.

Forex Turnover: Meanwhile, forex turnover at the Investor and Exporters (I&E) window recorded a decline on Monday, July 27, 2020, as it dropped by 11% day on day. According to the data tracked by Nairametrics from FMDQ, forex turnover decreased from $43.67 million on Friday, July 24, 2020, to $38.86 million on Monday, July 27, 2020.

The average forex sale for last week was as low as $27 million compared to $47 million the week before. We also noted that on no day last week did we record a sale close to or above $100 million, the first time this month.

READ ALSO: Why this is the best time to buy Bitcoins

Exchange rate disparity

The exchange rate disparity between the official NAFEX rate and black-market rate increased further on Monday staying as wide as N85.75. Nigeria maintains multiple exchange rates comprising the CBN official rate, the BDC rates, SMIS, and the NAFEX (I&E window).

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Exchange rate unification remains on the cards and yet to be implemented weeks after the central bank governor confirmed it will be executed.

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The minister of Finance also admitted that Nigeria was seeking a unification of its forex Windows, a move thought to be in line with the requirements from the World Bank. Nigeria is seeking a world bank loan of up to $3 billion. The country has been under pressure from the International Monetary Fund and the World Bank for currency reforms.

Covid-19 Pressures

Nigeria’s airspace remains closed to commercial international flight operations and won’t be open till October 2020. Foreign Travel has often been a source of demand for the greenback.

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READ ALSO: Bitcoin beats $10,000 mark in 7 weeks

The recent demand for dollars at the parallel market is thought to be fueled by speculators. The parallel market also caters to forex trades through wire transfers especially for buyers who cannot fulfill their dollar demands at the I&E window or the SMIS window. Exchange rate for wired transfer is often at a premium to the black market rate.

Forex Challenges: Last week has been one of the most challenging for the foreign exchange market as it witnessed very low liquidity. The downward slide against the greenback and some other major currencies appears to have continued this week.

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Dollar shortages have plagued the country for some months after crash in oil prices, Nigeria’s major foreign exchange earner, thereby shifting demand to the black market. The increasing disparity between the official rate and the black market rate will most likely encourage more speculation at the foreign exchange market.

In a bid to conserve foreign exchange, the Central Bank of Nigeria (CBN) directed banks to stop processing new trade documents for importation of maize.

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BDC proffers solution

According to a report from Nairametrics, the Association of Bureau De Change Operators (ABCON) President, Aminu Gwadebe, revealed that the reopening of the BDC window for foreign exchange, among others would crash the prevailing spike in the exchange rate.

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He said that the BDCs, have always been the medium and bridge for availability of liquidity at the retail end of the foreign exchange market. He also said that they had always provided some level of exchange rate stability in the forex market due to its proximity of BDCs to genuine FX end users.

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

Naira gains at NAFEX window as oil prices rally back

The exchange rate between the naira and the US Dollar closed at N411/$1, at the Investors and Exporters window on Wednesday.

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Naira falls across forex markets as businesses resume after public holidays

The exchange rate between the naira and the US Dollar closed at N411/$1, at the Investors and Exporters window on Wednesday.

Naira appreciated marginally against the US Dollar on Wednesday as it closed at N411 to a dollar at the NAFEX window, representing a 0.15% gain when compared to N411.63 recorded on the previous trading day. This is as oil prices rallied back at the global market.

Meanwhile, the naira remained stable against the dollar to close at N480/$1 on Wednesday, March 3, 2021. This was the same rate that it closed on the previous trading day.

The forex turnover at the Investor and Exporters (I&E) window dropped by 44% from $59.17 million recorded on Tuesday to $33.15 million on Wednesday, March 3, 2021.

Trading at the official NAFEX window

The Naira appreciated against the US Dollar at the Investors and Exporters window on Wednesday to close at N411/$1. This represents a 63 kobo gain when compared to N411.63 recorded on the previous trading day.

  • The opening indicative rate closed at N410.66 to a dollar on Wednesday. This represents a 55 kobo drop when compared to N410.11/$1 recorded on Tuesday.
  • Also, an exchange rate of N415 to a dollar was the highest rate during intra-day trading before it closed at N411/$1. It also sold for as low as N390/$1 during intra-day trading.
  • Forex turnover at the Investor and Exporters (I&E) window dropped by 43.97% on Wednesday, March 3, 2021.
  • According to the data tracked by Nairametrics from FMDQ, forex turnover declined from $59.17 million recorded on Tuesday, March 2, 2021, to $33.15 million on Wednesday, March 3, 2021.

Cryptocurrency watch

The world’s largest cryptocurrency, Bitcoin rallied back above $50,000 on Wednesday to close above $51,000 compared to its previous closing of $48,814.26 as it recovers from one of the most severe dips in its history.

  • The cryptocurrency rose by as much as 11% as bullish momentum returned after last week’s selloff, reaching the highest level in 2 weeks.
  • The cryptocurrency has been volatile with prices plunging 21% last week before recovering with the earlier broad bounce back in global equities. On a technical basis, the GTI Global Strength Indicator, which detects trend fluctuations, has begun to curl upward, suggesting a bullish move for Bitcoin.
  • Bitcoin was trading below $44,000 earlier this week, having hit an all-time high the week before above $58,000. Its rebound suggest the third great price rally in its history may still be underway
  • Meanwhile, Ether ETH=BTSP, the coin linked to the Ethereum blockchain network, dropped by 6% to $1,612.4 on Wednesday.

Oil price decline

Brent Crude oil rose by $1.06 on Wednesday to close at $64.07 representing a 1.7% increase when compared to $63.01 recorded on the previous trading day.

  • Oil prices rose on Wednesday, following reports that the OPEC+ group could be weighing the possibility not to increase collective oil production from April as widely expected and despite a shockingly large crude build (the largest on record) as estimated on Wednesday by the EIA, oil prices were still holding strong.
  • The OPEC+ alliance is considering keeping the oil production cuts from March in place in April as well, in view of the still-fragile global demand recovery.
  • Also, a US government report showed a record drop in domestic fuel inventories from the aftermath of a deep freeze that shuttered refineries in several states.
  • WTI Crude closed at $60.91 (0.60%), OPEC Basket $61.97 (-3.53%), Bonny Light $63.11 (-0.64%), and Natural Gas $2,800 (+0.57%).

External reserve dips to lowest in two months

Nigeria’s external reserve continued its decline as it dropped by 0.12% to $34.957 billion as of March 2, 2021, compared to $34.998 billion recorded as of March 1, 2021.

  • This represents the lowest external reserve position Nigeria has recorded in over two-months when it stood at $34.98 billion as of 24, December 2020.
  • It is also worth noting that Nigeria lost over $1.2 billion in external reserves in the month of February.
  • The decline in Nigeria’s external reserve has persisted in the month of February, despite rallying oil prices in the month. This is a cause for worry, as Nigeria will hope to boost its reserve in order to meet up with its accumulated needs, hindered by the crash in oil prices earlier in 2020.

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Currencies

Why external reserves is falling despite a rise in oil prices

Increased oil prices seem not to have stopped the further slide in Nigeria’s foreign reserves.

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Emefiele’s reappointment

Nigeria’s external reserve declined from $36.3 billion as of January 29, 2021, to $34.998 billion as of March 1, 2021, losing about $1.4 billion in just a month.

The rapid drop in the country’s external reserve is occurring despite the increase of Brent crude to over $66 per barrel as of February 24, 2021, from about $51 per barrel that it closed with on January 4, 2021.

Some analysts had attributed a couple of likely reasons for this drop. This includes the CBN intervention in the forex market to stabilize the exchange rate, low foreign inflows into the country, some CBN forex policies which discourage foreign investors.

The President of the Association of Bureau De Change Operators of Nigeria (ABCON), Aminu Gwadebe, during his chat with Nairametrics, said that the decline in Nigeria’s external reserve despite the recent increase in oil prices was due to supply shocks and shortages of foreign exchange due to drop of forex inflow from various sources.

Gwadebe said, ‘’You know we have a lot of supply shocks and shortages even before the appreciation of the crude oil prices, we just came out of recession with less than even 0.1%. We know the prices of crude oil, the demand came down throughout the Covid-19 period, even now with the new variant. So the IMTOs inflow has reduced drastically, export proceeds have reduced drastically, the I & E window has also gone down drastically. You know you can appreciate what is happening at the I & E window, their trade transactions sometimes hover up to N420/$1.’’

Read Also: CBN Governor confirms exchange rate unification plans  

On why increased oil prices have not stopped the further slide in the reserves, the ABCON President said, ‘’Completely all the sources coming have dried up, the oil prices dried up, IMTO window dried up. We are talking about a month, and these are contracts that have been closed for 3, 6 months delivery, we are just witnessing it. It will take time, it’s a very good buffer, no doubt we rely on it heavily for 90% of our foreign exchange supply. So if we have that improvement, it will give the CBN the muscle, the wherewithal to continue to support the local market. It will give CBN the muscle to make any speculation, check any hoarding.”

‘’Now that we have prospects in oil prices definitely that news, that coming in of new inflows will give the CBN the muscle to make any speculation, to checkmate hoarding, because they are in I & E window, they are in BDC window, they are in a lot of windows, so they can come up with liquidity. Definitely, it is going to. And we have seen the impact because the way it was going before this increase in crude oil prices, it was worrisome and if you look at it now it has remained stable, the highest it went is N480 for the parallel market and its always trending down. There is that stability just for that news, so you can imagine when we start receiving the liquid grill just imagine what it will become just like people have predicted and analyzed N430, N450/$1 is what we might be looking at by the end of the year,’’ he added.

On his part, a treasury and financial analyst, Odinaka Nwokonkwo, while giving reasons why it should be that way, pointed to CBN obligations. He said the apex bank paid Eurobond maturities in January or thereabout, and did FX swap with local and international counterparts which may have matured and needed to be paid down.

He said, ‘’There is a Eurobond maturity that CBN funded for, so that would also reduce the reserves, then another thing is when you look at, CBN has been intervening in the forex market. So on that space, you are seeing retail, you are seeing SME and invisibles intervention weekly. Retail is biweekly and SME and invisible about $100 million weekly. So sometimes CBN has bilateral transactions with international institutions and local banks where they take their FX and basically give them treasury bills, so that also is part of the reserves.

Read Also: Oil prices break above $65 a barrel, passing 13-month high

‘’So if some of those swaps have matured and CBN needs to pay down these bonds, they will also see a reduction. So it’s a combination of a lot of things. And also what is the volume of sales of the oil, are we really selling more, is the quantity we are selling is the same as what we are selling before. The demand might drop a little bit because some countries also have a second lockdown.’’

Nwokonkwo also believes that in the next quarter, there might see an accretion because some of those obligations may not be there.

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While pointing out that the accretion rate is slower than the debit rate, he said the oil price at $65 is not a significant increase compared to CBN FX obligations.

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These external reserve figures and swings point to two things: Nigeria seems to be overestimating the power of it oil to keep the country running and the enduring reality it needs to find other ways of earning foreign exchange.

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