Nigeria’s exchange rate at the NAFEX window remained stable for the third consecutive trading day to close at N386/$1 during intraday trading on Wednesday, September 16.

In sharp contrast, the naira remained depreciated to close at N465/$1 at the parallel market as the ban on forex allocation for food and fertilizer imports seems to be putting pressure on the market.

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Parallel Market: At the black market where forex is traded unofficially, the Naira depreciated against the dollar to close at N465/$1 on Wednesday, according to information from Abokifx, a prominent FX tracking website. This represents a N5 drop when compared with the N460/$1 that it exchanged on Tuesday, September 15

Currency Developments

• The local currency has strengthened by about 7.8% within the last one week at the black market, as the Central Bank of Nigeria introduced some measures targeted at exporters and importers in order to try to boost the supply of dollars in the foreign exchange market and reduce the high demand for forex by traders.
• The CBN has sold over $150 million to BDCs since the resumed forex sales on Monday, September 7, 2020. This was expected to inject more liquidity to the retail end of the foreign exchange market and discourage hoarding and speculation.
• However, the exchange rate against the dollar has failed to sustain the initial gains made after the CBN announced plans to provide liquidity.
• BDC operators have urged the apex bank to reconsider the margin allowed for the currency traders as it was inadequate to meet their expenses.
• We also noted that forex traders monitored during the previous week appear to hoard forex as they anticipated further depreciation in the market.
• There has been a sharp drop in speculative buying of foreign exchange, although demand backlog by manufacturers and foreign investors still puts pressure and creates a volatile situation in the foreign exchange market.

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NAFEX: The Naira remained stable against the dollar at the Investors and Exporters (I&E) window on Wednesday, closing at N386/$1.

• This was exactly the same rate that it exchanged for on Tuesday, September 15.
• The opening indicative rate was N386 to a dollar on Wednesday. This represents a 50 kobo gain when compared to the N386.50 to a dollar that was recorded on Tuesday.
• The N395.13 to a dollar is the highest rate during intraday trading before closing at the rate of N386/$1. It also sold for as low as N380.50/$1 during intraday trading.

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Forex Turnover: Forex turnover at the Investor and Exporters (I&E) window increased by 406.6% on Wednesday, September 16, 2020.

• According to the data tracked by Nairametrics from FMDQ, forex turnover rose sharply from $55.71 million on Tuesday, September 15, 2020, to $282.23 million on Wednesday, September 16, 2020.
• The Central Bank of Nigeria (CBN) is still battling to clear the huge backlog of foreign exchange demand, especially by foreign investors wishing to repatriate back their funds.
• The drop in forex supply after the previous day’s record increase reinforces the volatility of the foreign exchange market. The supply of dollars has been on a decline for months due to low oil prices and the absence of foreign capital inflow into the country.
• The average daily forex sale for last week was about $34.5 million which represents a drop from the $58.52 million that was recorded the previous week.
• Total forex trading at the NAFEX window in the month of August was about $857 million compared to $937 million in July.
• In a bid to further reduce the demand for the scarce foreign exchange and reduce the pressure on the country’s external reserve, President Muhammadu Buhari directed the CBN to stop forex allocation for fertilizer and food imports. This move seems to have increased the pressure on the black market as importers seek for an alternative.