Forex turnover hit record low dropping by 81.5% as Nigeria’s exchange rate at the NAFEX window remained stable against the dollar to close at N385.75/$1 during intraday trading on Wednesday, October 21.
Also, the naira remained stable against the dollar, closing at N463/$1 at the parallel market on Wednesday, October 21, 2020, as the imposition of the curfew bits hard on businesses.
This is also as businesses shut down due to the outbreak of violence in some parts of the country including Lagos during the protest against the special anti-robbery unit (SARS) and police brutality by the Nigerian youth.
Parallel market: According to information from Abokifx, a prominent FX tracking website, at the black market where forex is traded unofficially, the Naira remained stable against the dollar to close at N463/$1 on Wednesday. This was the same rate that it exchanged for on Tuesday, October 20.
- The local currency had strengthened by about 7.8% within the one week in September at the black market, as the CBN 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 measure
- The CBN has sold over $500 million to BDCs since they 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 remained volatile after the initial gains made, following the CBN’s resumption of sales of dollars to the BDCs.
- The President of the Association of Bureau De Change Operators, Aminu Gwadebe, said he expects the impact of the extra liquidity in the market to be gradual.
- Despite the drop in speculative buying of foreign exchange, the huge demand backlog by manufacturers and foreign investors still puts pressure and creates a volatile situation in the foreign exchange market.
NAFEX: The Naira remained stable against the dollar at the Investors and Exporters (I&E) window on Wednesday, closing at N385.75/$1.
- This was the same rate that it exchanged for on Tuesday, October 20.
- The opening indicative rate was N386.24 to a dollar on Wednesday. This represents a 14 kobo gain when compared to the N386.38 that was recorded on Tuesday.
- The N386 to a dollar is the highest rate during intraday trading. It also sold for as low as N384/$1 during intraday trading.
Forex turnover: Forex turnover at the Investor and Exporters (I&E) window hit record low as it declined by 81.5% on Wednesday, October 21, 2020.
- According to the data tracked by Nairametrics from FMDQ, forex turnover dropped from $32.67 million on Tuesday, October 20, 2020, to $6.05 million on Wednesday, October 21, 2020.
- The CBN is still struggling to clear the backlog of foreign exchange demand, especially by foreign investors wishing to repatriate back their funds.
- The continuous drop in forex supply 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.
- As part of the measure to check forex abuse and check illegal transactions, the CBN last month directed the freezing of accounts of about 38 companies.
- The average daily forex sale for last week was about $169.93 million, which represents a huge increase from the $34.5 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.
- The exchange rate is still being affected by low oil prices, dollar scarcity, a backlog of forex demand and a shaky economy that has been hit by the coronavirus pandemic.
- According to Reuters, currency traders said that the naira is expected to be stable this week as banks limit foreign exchange transactions by both firms and individual buyers on the unofficial black market to curb speculation
Naira falls across forex markets as CBN suggests official rate has been adjusted
The Naira depreciated against the US Dollar at the Investors and Exporters window on Friday closing at N410.25/$1.
The exchange rate between the naira and the US Dollar depreciated to close at N410.25/$1 at the Investors and Exporters (NAFEX) window, where forex is traded officially. This is as the CBN Governor has suggested that the official exchange rate has been devalued.
Similarly, at the parallel market where forex is traded unofficially, the naira depreciated closing at N482/$1 on Friday, February 26. This represents 0.42% drop when compared to the N480/$1 that it closed on the previous trading day.
However, forex turnover at the Investor and Exporters (I&E) window decreased by 79.3% from $212.43 million recorded on Wednesday to $43.97 million on Thursday 25th February 2021.
Trading at the official NAFEX window
The Naira depreciated against the US Dollar at the Investors and Exporters window on Friday closing at N410.25/$1. This represents a 0.39% drop when compared to N408.67/$1 recorded on Thursday, February 25, 2021.
- The opening indicative rate closed at N409.24 to a dollar on Friday. This represents an 8 kobo drop when compared to N409.16/$1 recorded on Thursday.
- Also, an exchange rate of N415 to a dollar was the highest rate during intra-day trading before it closed at N410.25/$1. It also sold for as low as N392/$1 during intra-day trading.
- Forex turnover at the Investor and Exporters (I&E) window dropped by 14.7% on Friday, February 26, 2021.
- According to the data tracked by Nairametrics from FMDQ, forex turnover decreased from $43.97 million recorded on Thursday, February 25, 2021, to $37.49 million on Friday, February 26, 2021.
The world’s largest cryptocurrency, Bitcoin, dropped 6.39% to close at $43,165.78 on Sunday, losing $2,944.20 from its previous close.
- Bitcoin has lost 26% from the year’s high of $58,354.14 on February 21, when it went up amid increasing confidence that it will become a mainstream investment and payments vehicle.
- A quick recap of bitcoin’s worst weekly performance since March 2020, shows that the week’s high volatility was not caused by one factor. It was largely triggered by an overheated derivatives market as traders rushed to exit leveraged bets that had accumulated.
- Further drops had coincided with a sell-off in the broader stock market due to rising concerns over surging bond yields, which might reduce the attraction for riskier assets like cryptocurrencies.
- Etherium dropped 8.88% to close at $1,329.46 on Sunday, losing $129.57 from its previous close.
- Meanwhile, Nigeria’s Vice President, Yemi Osibanjo, while disagreeing with the CBN on its recent ban on cryptocurrencies, called for crypto regulation knowing fully well the role it plays in the global financial ecosystem. Osibanjo advised CBN and SEC to create a regulatory road map for cryptocurrencies.
Oil price dip marginally on account of pullbacks
Brent crude oil price closed at $64.42 per barrel, dropping $1.69, the WTI Crude closed at $61.50 per barrel, dropping $2.03, OPEC Basket closed at $65.42, gaining $1.42 while the Bonny Light closed at $64.33 per barrel, dropping $1.20.
- These forecasts have called for an increase in crude oil supply in response to prices climbing above the pre-pandemic level.
- Analysts are also expecting that next week’s meeting of OPEC and its allies will result in more supply returning to the market.
- U.S. crude oil production fell in December to an average 11.063 million barrels per day, when compared to the average of 12.8 million barrels per day that was achieved in December 2019, according to the Energy Information Administration’s latest monthly report.
- U.S. crude oil production fell an average of 58,000 barrels per day, the EIA said on Friday.
The steady decline in external reserves
Nigeria’s external has declined by 0.15% to stand at $35.17 billion as of February 24th 2021 compared to $35.23 recorded as of 23rd February.
- This indicates that Nigeria has lost a total of $1.13 billion in external reserve positive in the month of February.
- According to data obtained from the Central Bank of Nigeria (CBN), external reserves declined from $36.3 billion as of 29th of January 2021 to $35.17 billion as of 24th of February.
- It is however worth noting that the decline in Nigeria’s external reserve has persisted despite a sharp increase in global crude oil prices as it is currently over $64 per barrel from $55.04 recorded as at the end of January.
U.S dollar stays fairly stable amid rising U.S Treasury yields
The U.S. Dollar Index inched lower by 0.04% to trade at 90.843 index points.
The greenback at press time remained fairly stable at the first trading session in March. The slight drop in the U.S dollar was not enough to trim its biggest gain seen in the U.S dollar index since June 2020 last Friday.
At the time of writing this report, the U.S. Dollar Index that gauges the greenback against a basket of major currencies inched lower by 0.04% to trade at 90.843 index points.
Currency traders are now focusing on the global bond market, where yields especially in the U.S bond markets gained yearly highs thereby raising hopes of a global economic recovery from COVID-19 triggered a selloff during the past week.
Bond moves are overriding economic data as the driver of currency markets, with treasury yields moving well ahead of economic fundamentals.
What you must know: The U.S. Dollar Index tracks the American dollar against a basket of other major currencies (like the Japanese yen, British pound sterling, Swedish Krona, and Euro).
Individuals hoping to meet foreign exchange payment obligations via dollar transactions to countries like Europe, and Japan, would need to pay more dollars in meeting such obligations.
Stephen Innes, Chief Global Market Strategist at Axi, in a note to Nairametrics, gave key insights on macros prevailing at the world’s biggest and most liquid financial market.
“At the beginning of the year and really up until just the last few days, the rates complex was priced for a perpetually and exceptionally dovish Fed.
“However, last week, there’s been ample evidence of investors getting stopped out of bullish currency bets as FX traders were caught far too short dollars against the backdrop of higher US Treasury yields, especially against commodity currency linkers.”
What to expect
That being said, it’s critical to note that recent price actions suggest most currency traders’ bias hasn’t changed: the global cyclical rebound should result in broad Dollar weakness despite a strong US economy.
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