Forex turnover improved significantly by 536.7% as Nigeria’s exchange rate at the NAFEX window maintained its stability against the dollar to close at N386/$1 during intra-day trading on Thursday, November 5.
Also, the naira depreciated further against the dollar, closing at N465/$1 at the parallel market on Thursday, November 5, 2020, as BDCs get another round of dollar supply from CBN.
This is also as businesses that were shut down due to the outbreak of violence in Lagos and some parts of the country during the protests against the special anti-robbery unit (SARS) and police brutality by the Nigerian youths get back to full activity.
Parallel market: According to information from Abokifx – a prominent FX tracking website, at the black market where forex is traded unofficially, the Naira depreciated against the dollar to close at N465/$1 on Thursday. This represents a N1 drop when compared to the N464/$1 that it exchanged for on Wednesday, November 4.
- 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 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 Thursday, closing at N386/$1.
READ: After hitting a 3-year low during the week, Naira stabilizes as traders wonder what next
- This was the same rate that it exchanged for on Wednesday, November 4.
- The opening indicative rate was N385.94 to a dollar on Thursday. This represents an 11 kobo gain when compared to the N386.05 that was recorded on Wednesday.
- The N393.51 to a dollar was 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.
- Forex turnover: Forex turnover at the Investor and Exporters (I&E) window rose sharply by 536.7% on Thursday, November 5, 2020.
- According to the data tracked by Nairametrics from FMDQ, forex turnover rose from $23.56 million on Wednesday, November 5, 2020, to $150.02 million on Thursday, November 5, 2020.
- The CBN is still struggling to clear the backlog of foreign exchange demand, especially by foreign investors wishing to repatriate their funds.
- The sharp increase in dollar supply after the previous trading day’s 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 measures to check forex abuse and 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 September was about $1.98 billion, compared to $843.97 million in August.
- 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.
Explore Data on the Nairametrics Research Website