Forex turnover dropped by 7.4% as Nigeria’s exchange rate at the NAFEX window appreciated against the dollar to close at N385.67/$1 during intra-day trading on Thursday, November 12.
However, the naira depreciated further against the dollar, closing at N468/$1 at the parallel market on Thursday, November 12, 2020, as demand pressure in the foreign exchange market intensifies.
READ: CBN promises to sustain FX restrictions on import of food items that can be produced locally
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 N468/$1 on Thursday.
This represents a N2 drop when compared to the N466/$1 that it exchanged for on Wednesday, November 11.
- The local currency had strengthened by about 7.8% within one week in September at the black market, as the CBN introduced some measures targeted at exporters and importers.
- This was so as 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.
READ: Naira gains against the dollar across forex markets as liquidity hits record increase
NAFEX: The Naira depreciated against the dollar at the Investors and Exporters (I&E) window on Thursday, closing at N385.67/$1.
- This represents a 16 kobo gain when compared to the N385.83/$1 that it exchanged for on Wednesday, November 11.
- The opening indicative rate was N386.10 to a dollar on Thursday. This also represents a 11 kobo drop when compared to the N385.99 that was recorded on Wednesday.
- The N393.57 to a dollar was the highest rate during intra-day trading before it closed at N385.67 to a dollar. It also sold for as low as N383/$1 during intraday trading.
- Forex turnover: Forex turnover at the Investor and Exporters (I&E) window declined by 7.4% on Thursday, November 12, 2020.
- According to the data tracked by Nairametrics from FMDQ, forex turnover dropped from $205.5 million on Wednesday, November 11, 2020, to $189.91 million on Thursday, November 12, 2020.
- The CBN is still struggling to clear the backlog of foreign exchange demand, especially by foreign investors wishing to repatriate their funds.
- The drop in dollar supply after the previous trading day’s 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 $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.
- A financial expert and Managing Director of Financial Derivatives had stated that he expects the exchange rate at the parallel market to likely depreciate to N470-N475/$1 in November and December due to low oil prices that will further limit foreign exchange supply.
- Some members of MPC of the CBN have expressed serious concerns over the increasing demand pressure in the country’s foreign exchange market. This is as obligation of manufacturers to their foreign suppliers continues to increase in the face of dollar shortages.
READ: Exchange rate stabilizes across forex markets as CBN intervenes
What is the way forward sir to the fall of naira against the dollar.