The exchange rate between the naira and dollar depreciated to N410.25/$1 at the official NAFEX window on December 31st, 2020 ending a tumultuous year for the currency market.
At N410.25/$1, the exchange rate officially depreciated by 11.8% for 2020 at the official NAFEX window of the FMDQOTC where forex is traded by investors and exporters. In line with accounting standards, companies across Nigeria who have dollars in their bank accounts will convert their balances to naira using N410.25/$1.
Nairametrics first reported earlier in the day that the exchange rate may have been devalued to N410/$1 at the official I&E Window when trades crossed above N410 in mid-day trading, signifying a possible devaluation of the naira.
- The official exchange rate quoted on the website of the central bank remains at N379/$1 as of December 31st, 2020, and is yet to be updated. The FMDQOTC website however updated their closing rate to N410.25/$1 as at close of business December 31st, 2020.
- The highest price on the day was N412.05 while forex turnover on the day was $235.75 million rose. Nigeria’s external reserve increases by $515 million in 12 days, rising from $34.841 billion as of 18 December 2020, to $35.356 billion as of 30 December 2020.
- Information reaching Nairametrics suggests there was a surge in demand pressure during trading forcing authorities to allow trades to cross higher than N410/$1 and settling at this price by closing.
- The exchange rate at the parallel market closed at N470/$1 for anyone selling marking a disparity of about N60 with the official rates.
What happens in the new year
The central bank is yet to update its exchange rate figure on its website and did not issue any circular reflecting any official adjustments for the exchange rate.
- We also understand that the latest round of adjustment at the I&E window is temporary as the rates could fall back below N400/$1.
- The latest devaluation is likely to trigger another round of uncertainty for the currency market that has remained disconnected from the reality in the parallel market.
- With the exchange rate disparity at N60, we believe another round of devaluation could be in the offing with our analyst estimates placing at between N430-N440/$1.
- Already, foreign currency wire transfers (which is not always captured by black market rates) in the millions of dollars exchange for as high as N480/$1
- The World Bank has also compelled the CBN to unify the multiple exchange rates suggesting that rates at other windows will likely adjust closer to the NAFEX as early as next week (assuming this rate remains).
Nigeria’s Devaluation Story
The central bank has now devalued the exchange rate at least three times this year at the official investors’ and exporters’ window as it strives to bridge the disparity between the official and parallel market rates.
- The first devaluation occurred on March 20th when the exchange rate went from N307 to about N360 on the NAFEX market
- The second occurred on August 6th when it went from N360 to N380 to the dollar respectively.
- The I&E window has often recorded Naira devaluation ahead of the CBN official rate.
- Nigeria maintains multiple exchange rate windows with rates that are marginally different.
U.S dollar under pressure amid rising inflation
At press time, the U.S. dollar index, which tracks the U.S dollar strength against major currencies dropped by 0.12% to trade at 90.945 points.
The greenback dropped significantly against its rivals on Tuesday as currency analysts anticipated more selling pressure on the U.S dollar despite concerns that the U.S Federal Reserve might raise rates sooner than expected.
At the time of writing this report, the U.S. dollar index, which tracks the U.S dollar strength against major currencies dropped by 0.12% to trade at 90.945 points.
Currency traders and analyst anticipate the second coming of dollar strength, might not last long with inflation picking up at record levels coupled with an unlikely aggressive approach towards tightening monetary liquidity from the U.S Apex Bank.
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 valuable insights on the macros weighing on the dollar in the near term.
“It looks very much like a textbook case of US dollar weakness as the pieces are slowly falling into place for a dollar selling trend to resume.
“A deteriorating US trade deficit, a retracement in Fed. pricing, a significant upturn in European vaccination rates and upcoming growth acceleration support the view.”
What to expect
The currency market is now turning more consensus by the day that the next recovery spurt should be relatively short-lived and are now deferring to the Fed’s “broad-based and inclusive” labour market progress to satisfy its maximum employment objective.
Naira gains at NAFEX window as oil prices make rebound
Naira gained against the US dollar on Monday 19th April 2021 to close at N410.33/$1 as crude oil prices gained.
Monday, 19th April 2021: The exchange rate between the naira and the US dollar closed at N410.33 to a dollar at the Importers and Exporters window.
Naira gained against the US dollar on Monday, 19th April 2021 to close at N410.33 to a dollar. This represents a 0.16% appreciation compared to N411/$1 recorded on Friday, 16th April 2021.
On the other hand, the naira remained stable at the parallel market, as it closed at N482/$1 on Monday, 19th April 2021. Dollar supply at the NAFEX window increased from $61.52 million to stand at $69.71 million, representing an increase of 13.3%.
Notably, crude oil posted positive growth on Monday as Brent crude grew by 0.54%, and Bonny Light gained 0.37%.
Trading at the official NAFEX window
The naira gained against the US Dollar at the Investors and Exporters window on Monday to close at N410.33/$1. This represents a 67 kobo gain when compared to N411/$1 recorded on Friday, 16th April 2021.
- The opening indicative rate closed at N409 to a dollar on Monday. This represents a N1.13 kobo gain, compared to N410.13/$1 recorded the previous day.
- Also, an exchange rate of N437.41 to a dollar was the highest rate recorded during intra-day trading before it closed at N410.33/$1. It also sold for as low as N399/$1 during intra-day trading.
- Forex turnover at the Investor and Exporters (I&E) window improved by 13.3% on Monday, 19th April 2021.
- A cursory look at the data tracked by Nairametrics from FMDQ showed that forex turnover increased from $61.52 million recorded on Friday, April 16th, 2021, to $69.71 million on Monday.
Bitcoin continues to record a significant downturn after hitting a record high last week. The world’s most popular and sought-after digital asset, declined by 2.77% in the early hours of Tuesday to trade at $53,301.12.
- Recall that the asset had dropped by 15% on Saturday and 6.1% in the hours of Monday, 19th April 2021.
- As of 4:03 am on Tuesday, Bitcoin was trading at $53,301.12, representing $1,359 lesser than the close of trade on Sunday.
- The entire crypto market capitalisation also slumped to $1.9 trillion, from over $2 trillion market capitalisation recorded a day before.
Crude oil gains on the back of a weak dollar
Oil prices gained marginally on, 19th April 2021 to close at $67.13 per barrel, indicating a 0.54% growth when compared to $66.77 recorded on Sunday.
- The increase was attributed to a weaker US Dollar on Monday, as prices of major crude oil products recorded marginal growth across board.
- The weaker U.S. dollar supported oil prices on Monday as it makes oil cheaper to buy for holders of other currencies. The gains were however limited due to the third wave of the covid-19 pandemic in India.
- Brent Crude closed at $67.13 (+0.54%), WTI Crude closed at $63.48 indicating 0.54% gain, Bonny Light, $65.25 (+0.24%), OPEC Basket (+0.73%) to close at $65.21 while Natural gas also grew by 2.16% to close at $2.738.
Nigeria’s external reserve increased by 0.08% on Friday, 16th April 2021 to stand at $35.25 billion.
- This represents the 19th consecutive increase in Nigeria’s external reserve position, which has gained about $838.3 million since 18th March 2021, about a month ago.
- Nigeria’s external reserve has received a consistent boost in recent times on the back of the increase in the price of crude oil and the CBN’s policy to pay Nigerians for any unit of dollar received from the diaspora.
- Nigeria will hope for this increase to continue, as it will help the country to meet its accumulated obligations that have been hampered by the advent of the pandemic in the country.
Nairametrics | Company Earnings
Access our Live Feed portal for the latest company earnings as they drop.
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