Friday 12th February 2021: The exchange rate between the naira and the dollar depreciated closing at N404.67/$1 at the NAFEX (I&E Window) where forex is traded officially.
Naira closed against the US Dollar at N404.67/$1, representing a 1.17% depreciation compared to N400/$1 recorded at the close of trade on Thursday, 11th February 2021. This also represents the fourth straight day Naira closed in the N400/$1 region.
The official exchange rate at the NAFEX (I&E) Window has now closed above N400/$1 for 5 days consecutively the first time ever. This suggests the forex market can expect to use N400-405/$1 as the official exchange rate when quoting for transactions.
At the parallel market where forex is traded unofficially, the naira appreciated closing at N473/$1 on Friday, February 12. This represents a N2 gain when compared with the N475/$1 that it closed on the previous trading day.
Also, Nigeria’s external reserves lost $312.5 million in 7 days as it fell to $35.804 billion as of February 11, 2021, from $36.116 billion as of February 3, 2021, according to data from CBN.
Trading at the official NAFEX window
The Naira depreciated against the dollar at the Investors and Exporters (I&E) window on Friday, closing at N404.67/$1. This represents a N4.67 drop when compared to the N400/$1 that it closed on the previous trading day.
- The opening indicative rate closed at N401.63 to a dollar on Friday. This represents a 12 kobo gain when compared to N401.75 to a dollar that was recorded the previous trading day on Thursday, February 11, 2021.
- An exchange rate of N422.59 to a dollar was the highest rate during intra-day trading before it closed at N404.67 to a dollar. It also sold for as low as N386/$1 during intra-day trading.
- Forex turnover at the Investor and Exporters (I&E) window rose by 22% on Friday, February 12, 2021.
- According to the data tracked by Nairametrics from FMDQ, forex turnover increased from $79.07 million on Thursday, February 11, 2021, to $96.5 million on Friday, February 12, 2021.
The world’s largest cryptocurrency, Bitcoin, reached a new record high as it nears $50,000 mark. It reached about $49,694 earlier on Sunday before later hitting around $48,904
- This came after reports indicated that a number of bank accounts linked to crypto have been allegedly closed by their respective banks as a result of the CBN’s directive prohibiting banks and other financial institutions from dealing in crypto-related transactions.
- The Securities and Exchange Commission (SEC) had also disclosed that there is no policy conflict between itself and the Central Bank of Nigeria (CBN) concerning the ban placed on Cryptocurrency in Nigeria’s banking industry.
- It is also worth noting that the Senate mandated its Committees on Banking, Insurance and other Financial Institution, ICT and Cybercrimes and Capital Market to invite the Governor of the CBN for a briefing on the ban on crypto transactions.
Oil price goes past $63 mark
Brent crude oil price hit $63.58, highest in more than a year, on Sunday evening, as it goes past the $63 mark.
- This came as a result of output curbs from top oil producers, dropping down global inventories.
- The continuous rise in oil prices is also aided by expectations that production curbs by OPEC+ would tighten the market in the first quarter.
- OPEC oil output has risen for the seventh month in January after the group and its allies agreed to ease record supply cuts further, although an involuntary drop in Nigeria’s exports has limited the increase.
- Meanwhile, WTI Crude closed at $60.58 (+1.36), Bonny Light $60.77 (+0.37), and OPEC Basket $60.54 (+0.09).
Nigeria’s external reserve dips despite rallying oil prices
- The external reserve has dropped further to $35.8 billion as of February 11, 2021.
- This represents a decline of 0.12% compared to $35.85 billion as of 10th February 2021.
- The foreign reserve has been on a steady decline since the 25th of January 2021, losing a total of $717.3 million in 15 days.
- Meanwhile, this is still an improvement on the $35.37 billion that it was as of December 31, 2020.
- Nigeria also, needs the external reserves to hit $40 billion if it is to adequately meet some of the pent up demand that has piled up since 2020 when oil prices crashed and the pandemic caused major economic lockdowns.
Naira falls across forex markets as CBN suggests official rate has been adjusted
The Naira depreciated against the US Dollar at the Investors and Exporters window on Friday closing at N410.25/$1.
The exchange rate between the naira and the US Dollar depreciated to close at N410.25/$1 at the Investors and Exporters (NAFEX) window, where forex is traded officially. This is as the CBN Governor has suggested that the official exchange rate has been devalued.
Similarly, at the parallel market where forex is traded unofficially, the naira depreciated closing at N482/$1 on Friday, February 26. This represents 0.42% drop when compared to the N480/$1 that it closed on the previous trading day.
However, forex turnover at the Investor and Exporters (I&E) window decreased by 79.3% from $212.43 million recorded on Wednesday to $43.97 million on Thursday 25th February 2021.
Trading at the official NAFEX window
The Naira depreciated against the US Dollar at the Investors and Exporters window on Friday closing at N410.25/$1. This represents a 0.39% drop when compared to N408.67/$1 recorded on Thursday, February 25, 2021.
- The opening indicative rate closed at N409.24 to a dollar on Friday. This represents an 8 kobo drop when compared to N409.16/$1 recorded on Thursday.
- Also, an exchange rate of N415 to a dollar was the highest rate during intra-day trading before it closed at N410.25/$1. It also sold for as low as N392/$1 during intra-day trading.
- Forex turnover at the Investor and Exporters (I&E) window dropped by 14.7% on Friday, February 26, 2021.
- According to the data tracked by Nairametrics from FMDQ, forex turnover decreased from $43.97 million recorded on Thursday, February 25, 2021, to $37.49 million on Friday, February 26, 2021.
The world’s largest cryptocurrency, Bitcoin, dropped 6.39% to close at $43,165.78 on Sunday, losing $2,944.20 from its previous close.
- Bitcoin has lost 26% from the year’s high of $58,354.14 on February 21, when it went up amid increasing confidence that it will become a mainstream investment and payments vehicle.
- A quick recap of bitcoin’s worst weekly performance since March 2020, shows that the week’s high volatility was not caused by one factor. It was largely triggered by an overheated derivatives market as traders rushed to exit leveraged bets that had accumulated.
- Further drops had coincided with a sell-off in the broader stock market due to rising concerns over surging bond yields, which might reduce the attraction for riskier assets like cryptocurrencies.
- Etherium dropped 8.88% to close at $1,329.46 on Sunday, losing $129.57 from its previous close.
- Meanwhile, Nigeria’s Vice President, Yemi Osibanjo, while disagreeing with the CBN on its recent ban on cryptocurrencies, called for crypto regulation knowing fully well the role it plays in the global financial ecosystem. Osibanjo advised CBN and SEC to create a regulatory road map for cryptocurrencies.
Oil price dip marginally on account of pullbacks
Brent crude oil price closed at $64.42 per barrel, dropping $1.69, the WTI Crude closed at $61.50 per barrel, dropping $2.03, OPEC Basket closed at $65.42, gaining $1.42 while the Bonny Light closed at $64.33 per barrel, dropping $1.20.
- These forecasts have called for an increase in crude oil supply in response to prices climbing above the pre-pandemic level.
- Analysts are also expecting that next week’s meeting of OPEC and its allies will result in more supply returning to the market.
- U.S. crude oil production fell in December to an average 11.063 million barrels per day, when compared to the average of 12.8 million barrels per day that was achieved in December 2019, according to the Energy Information Administration’s latest monthly report.
- U.S. crude oil production fell an average of 58,000 barrels per day, the EIA said on Friday.
The steady decline in external reserves
Nigeria’s external has declined by 0.15% to stand at $35.17 billion as of February 24th 2021 compared to $35.23 recorded as of 23rd February.
- This indicates that Nigeria has lost a total of $1.13 billion in external reserve positive in the month of February.
- According to data obtained from the Central Bank of Nigeria (CBN), external reserves declined from $36.3 billion as of 29th of January 2021 to $35.17 billion as of 24th of February.
- It is however worth noting that the decline in Nigeria’s external reserve has persisted despite a sharp increase in global crude oil prices as it is currently over $64 per barrel from $55.04 recorded as at the end of January.
U.S dollar stays fairly stable amid rising U.S Treasury yields
The U.S. Dollar Index inched lower by 0.04% to trade at 90.843 index points.
The greenback at press time remained fairly stable at the first trading session in March. The slight drop in the U.S dollar was not enough to trim its biggest gain seen in the U.S dollar index since June 2020 last Friday.
At the time of writing this report, the U.S. Dollar Index that gauges the greenback against a basket of major currencies inched lower by 0.04% to trade at 90.843 index points.
Currency traders are now focusing on the global bond market, where yields especially in the U.S bond markets gained yearly highs thereby raising hopes of a global economic recovery from COVID-19 triggered a selloff during the past week.
Bond moves are overriding economic data as the driver of currency markets, with treasury yields moving well ahead of economic fundamentals.
What you must know: 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 key insights on macros prevailing at the world’s biggest and most liquid financial market.
“At the beginning of the year and really up until just the last few days, the rates complex was priced for a perpetually and exceptionally dovish Fed.
“However, last week, there’s been ample evidence of investors getting stopped out of bullish currency bets as FX traders were caught far too short dollars against the backdrop of higher US Treasury yields, especially against commodity currency linkers.”
What to expect
That being said, it’s critical to note that recent price actions suggest most currency traders’ bias hasn’t changed: the global cyclical rebound should result in broad Dollar weakness despite a strong US economy.
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