Nigeria’s exchange rate at the NAFEX window appreciated to N389.25 during intraday trading on Wednesday, July 29th 2020. In contrast, the exchange rate at the parallel market remained unchanged for the second day in a row after hitting a new low on Monday, July 27th when it closed at N475/$1.

Market Watch

Parallel Market: At the black market where forex is traded unofficially, the Naira remain unchanged for the second consecutive day against the dollar to close at N475/$1 on Wednesday, according to information from Abokifx, a prominent FX tracking website. This was the same rate that it exchanged on Tuesday, July 28. Some traders contacted by Nairametrics research also confirmed the same price as N475/$1.

However, wired transfers cost as high as N477/$1 an additional N2 premium. Wired transfers represent non cash forex transactions between a buyer and a seller without going through the official channels. Wired transactions occur through bank accounts and usually cost more.

READ: CBN adjust naira from N360 to N380 at SMIS

NAFEX: The Naira appreciated against the dollar at the Investors and Exporters (I&E) window on Wednesday, closing at N389.25/$1. This represents a 25 kobo gain when compared to the N389.50 rate close that was reported on Tuesday, July 28.  The opening indicative rate was N388.61 to a dollar on Wednesday. This represents a 17 kobo drop when compared to the N388.44 to a dollar that was recorded on Tuesday.

The naira fell to as high as N392.50 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 Wednesday, July 29, 2020, as it dropped by 52.1% day on day. According to the data tracked by Nairametrics from FMDQ, forex turnover decreased from $39.31 million on Tuesday, July 28, 2020, to a low $18.83 million on Wednesday, July 29, 2020.

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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. FX turnover remains subdued this week as Nigeria approaches a two-day holiday in the last two days of July.

Exchange rate disparity

The exchange rate disparity between the official NAFEX rate and the black-market rate remained wide on Tuesday 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).

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

The minister of Finance also admitted that Nigeria was seeking 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.

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 fulfil their dollar demands at the I&E window or the SMIS window. The 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 have continued this week due to tightened liquidity in the system.

Dollar shortages have plagued the country for some months after the 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.

The gap between the official rate/NAFEX rate and the black market rate has encouraged a lot of speculation and created huge arbitrage opportunities for some connected individuals or currency speculators who might get it at the official rate.