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Currencies

Naira maintains stability in forex markets, dollar supply improves despite curfew

At the black market where forex is traded unofficially, the Naira remained stable against the dollar to close at N463/$1 on Friday.

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Naira, Exchange rate falls across forex markets as dollar liquidity remains low

Forex turnover improved significantly by 154% as Nigeria’s exchange rate at the NAFEX window remained stable against the dollar to close at N386/$1 during intraday trading on Friday, October 23.

Also, the naira remained stable against the dollar, closing at N463/$1 at the parallel market on Friday, October 23, 2020, as more states across the country impose curfew due to outbreak of violence.

READ: Naira falls at black market, violence erupts across the country from #EndSARS protests

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 Friday. This was the same rate that it exchanged for on Thursday, October 22.

Explore Data on the Nairametrics Research Website

READ: Exchange rate stabilizes as CBN investigates over 100 companies for forex abuse

  • 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.

READ: Cutix Plc to pay its shareholders N220.1 million final dividend

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

  • This was the same rate that it exchanged for on Thursday, October 22.
  • The opening indicative rate was N386 to a dollar on Friday. This represents a 13 kobo gain when compared to the N386.13 that was recorded on Thursday.
  • The N393.13 to a dollar is the highest rate during intraday trading before it closed at N386 to a dollar. It also sold for as low as N380/$1 during intraday trading.

READ: Exchange rate weakens at NAFEX window as dollar supply continues its decline

Forex turnover: Forex turnover at the Investor and Exporters (I&E) window increased significantly by 154.3% on Friday, October 23, 2020.

  • According to the data tracked by Nairametrics from FMDQ, forex turnover rose from $77.62 million on Thursday, October 22, 2020, to $197.42 million on Friday, October 23, 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 increase in dollar supply after a record drop 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.

 

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 falls against US dollar as CBN extends Naira4dollar scheme indefinitely

    The exchange rate between the naira and the US dollar, closed at N411/$1 at the I&E Window.

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    Thursday, 6th May 2021: The exchange rate between the naira and the US dollar, closed at N411/$1 at the Importers and Exporters window, where forex is traded officially.

    Naira fell against the US dollar to close at N411 to a dollar on Thursday, 6th May 2021, representing a 50 kobo decline when compared to N410.5/$1 that was recorded on Wednesday, 5th May 2021.

    Meanwhile, the naira maintained stability at the parallel market as it closed at N485/$1, while Nigeria’s external reserve plunged $28.94 million to close at $34.76 billion on Wednesday, 5th May 2021.

    Also, the apex bank issued an indefinite extension to its Naira4dollar scheme for foreign remittances, which was introduced some months ago. This is aimed at sustaining the country’s foreign exchange market liquidity.

    READ: Naira gains at NAFEX window as dollar supply improves by 305%

    Trading at the official NAFEX window

    The naira depreciated against the US dollar at the Investors and Exporters window on Thursday to close at N411/$1, representing a 50 kobo decline when compared to the N410.5/$1 that was recorded on Wednesday.

    • The opening indicative rate closed at N410.37 to a dollar on Thursday, 6th May 2021, representing a 12 kobo depreciation when compared to the N410.25/$1 recorded on Wednesday.
    • Also, an exchange rate of N420.9 to a dollar was the highest rate recorded during intra-day trading before it settled at N411/$1. It, however, sold for as low as N400/$1 during intra-day trading.
    • Forex turnover at the Investor and Exporters (I&E) window declined by 38.4% on Thursday, 6th May 2021.
    • A cursory look at the data tracked by Nairametrics from FMDQ showed that forex turnover decreased from $172.52 million recorded on Wednesday, 5th May 2021 to $106.34 million on Thursday, 6th May 2021.

    READ: Exchange rate depreciates at NAFEX window as Bitcoin slumps by over 5%

    Cryptocurrency watch

    Bitcoin, the world’s most popular cryptocurrency, slumped by 2% on Thursday to trade at $56,358.03.

    • As of 11:31 pm on Thursday, the highly valued cryptocurrency asset witnessed a decline despite soaring as high as 5.5% on Wednesday.
    • However, Ethereum recorded a marginal growth of 0.07% to close at $3,530.75, capitalising on the 9.1% gain recorded in the previous day.
    • The total crypto market capitalisation depreciated by 0.53% to close at $2.33 trillion on Thursday.
    • Meanwhile, payments giant, Visa and financial services provider TALA have partnered to boost cryptocurrency adoption in emerging markets.
    • This partnership is aimed at easing the process of converting, storing and using cryptocurrencies by the underbanked consumers.

    READ: Naira depreciates as dollar sales top $100m a day at I&E window

    Crude oil price stalls

    Crude oil prices witnessed a bearish trading session on Thursday, 6th May 2021 as the oil price rally stalled due to the worsening covid-19 crisis in India.

    • Brent Crude dipped by 0.97% on Thursday to close at $68.29 compared to its closing price of $68.96 recorded at Wednesday’s trading session.
    • The decline in oil prices, which cut short the rally to $70 a barrel was due to a fresh record of new daily coronavirus cases reported by the third-largest importer of oil in the world.
    • Also, according to energy analytics firm OilX, China’s crude oil imports fell by 11% in April 2021 to stand at 10.41 million barrels per day.

    External reserve

    Nigeria’s external reserve plunged for the 12th consecutive day on Wednesday, 5th May 2021 as it dipped $28.91 million to close at $34.76 billion.

    • The nation’s foreign reserve declined from $34.79 billion recorded as of Tuesday, 4th May 2021 to $34.76 billion on Wednesday, representing a 0.28% decline.
    • Nigeria’s foreign reserve has dipped $497.36 million since 16th April 2021 to date.
    • Nigeria will hope to boosts its foreign reserve position as oil prices continue to rally high and the CBN intensified effort to encourage dollar remittances into the country.

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    Currencies

    How rise in oil prices will impact exchange rate

    Oil prices are currently inching closer to $70 per barrel as the positive outlook of a return to global economic recovery swells investor sentiments.

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    Crude oil prices rebound ease investors’ concerns for Nigeria debt market, How substantial is compliance for the Oil market?, Crude Oil price soars high on new COVID-19 vaccine

    Nigeria, Africa’s top oil producer and home to the second-largest reserves on the continent, is expected to benefit from the rise in oil prices in many ways.

    Oil prices are currently inching closer to $70 per barrel as the positive outlook of a return to global economic recovery swells investor sentiments.

    Historically, there has been a strong positive correlation between crude oil prices and the performance of the Nigerian economy. For example, when oil prices plummeted due to the COVID-19 outbreak and the implementation of lockdown protocols in 2020, the Nigerian government scaled down the budget to align better with the drop in crude oil price.

    Now that there is a surge in oil price, we should expect that there would be an increase in government revenue translating to a stirring-up of aggregate demand.

    READ: Nigeria records highest trade deficit since 1981

    Why oil price is rising

    The OPEC+ output restrains, despite the strong recovery of oil consumption, continues to give formidable fitting to bullish sentiments about soaring oil prices.

    • Oil prices are rising as optimism about a strong rebound in fuel demand in developed countries overshadows concerns of full lockdown to curb covid-19 in India.
    • Oil (BRENT) has seen a 34.3% increase Year to Date with the oil price at $69.34 showing an increase of +1.15% as of the time of writing this article.

    What it means for the exchange rate

    Perhaps the greatest benefit of the recent oil price rise is exchange rate stability. Since the crash in oil prices began in late 2019, Nigeria’s official currency has faced a barrage of sell pressure as local and foreign investors increase demand for the dollar.

    This forced the central bank to curtain demand, implementing various forms of capital controls across the economy. With oil prices on the rise, Nigerians can begin to expect the following:

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    • An increase in government revenue, which also means higher dollar earnings and thus increased FX reserves. Nigeria’s FX reserve reportedly stands at $34.7 billion as of Tuesday, May 4th, 2021. Soaring oil prices strengthen the exchange rate and promote economic growth. This effect trickles down to higher reserves held by the CBN meant for stabilization of the currency.
    • Higher oil prices could also mean a more stable economy thus propelling economic growth. This, in turn, attracts foreign investor dollars or at least retains what we already have and reduces the pressure on demand.
    • Nigerians have intensified diversifying their currency holdings, keeping less of naira and holding more dollars as they hedge against depreciation. This has kept the pressure on the exchange rate over the last one and a half years. This trend could reverse if oil prices continue their steady rise.

    READ: Dangote: Cement price from our factories is between N2,450 and N2,510 per bag, VAT inclusive

    The implication? The parallel market exchange rate might appreciate closer to the NAFEX rate if this trend continues.

    Hence, it is safe to presume that as the world resume business and travel activities, the demand for Black Gold will continue to increase, and with supply held steady by OPEC+ we can speculate that this is enough catalyst to relieve the pressure of FX demand and increase our foreign reserves thereby propelling growth.

    However, the inclusivity of this growth may still be in question.

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