Forex turnover dropped by 52.2%, as the Naira’s exchange rate at the NAFEX window appreciated against the dollar to close at N390.25/$1 during intra-day trading on Friday, November 27.
However, the Naira crashed again to an over 3-year low against the dollar, closing at N500/$1 at the parallel market on Friday, November 27, 2020, as a recent circular seen by Nairametrics suggests that the CBN has devalued the exchange rate between the dollar and the Naira sold to the BDCs from N384/$1 to N390/$1.
This is as the Naira hit a record low of N600/$1 on the futures for 5-year settlement on Friday, as the severity of forex scarcity becomes more intense, according to a report from Reuters.
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 N500/$1 on Friday.
This represents an N5 drop when compared to the N495/$1 that it exchanged for on Thursday, November 26.
- 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 is to boost the supply of dollars in the foreign exchange market and reduce the high demand for forex by traders.
- However, the gains appear to have been completely erased with the recent crash of the exchange rate.
- The CBN has sold over $1 billion to BDCs since they resumed forex sales on Monday, September 7, 2020.
- This was expected to inject more liquidity into 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.
- Despite the CBN intervention, 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 appreciated against the dollar at the Investors and Exporters (I&E) window on Friday, closing at N390.25/$1.
- This represents an N3 gain when compared to the N393.25/$1 that it exchanged for on Thursday, November 26.
- The opening indicative rate was N388.70 to a dollar on Friday. This represents a 55 Kobo drop when compared to the N388.15 that was recorded on Thursday.
- The N400.37 to a dollar was the highest rate during intra-day trading before, it still closed at N390.25 to a dollar. It also sold for as low as N383/$1 during intra-day trading.
- Forex turnover: Forex turnover at the Investor and Exporters (I&E) window declined by 52.2% on Friday, November 28, 2020.
- According to the data tracked by Nairametrics from FMDQ, forex turnover dropped from $210.25 million on Thursday, November 26, 2020, to $100.52 million on Friday, November 27, 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.
- 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.
- 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 an obligation of manufacturers to their foreign suppliers that continues to increase in the face of dollar shortages.
Explore Data on the Nairametrics Research Website