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Currencies

Exchange rate depreciates at NAFEX window as Bitcoin slumps by over 5%

Naira remained stable at the parallel market as it closed at N485/$1 on Tuesday, 4th May 2021, the same as recorded on the previous day.

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Exchange rate depreciates at NAFEX window as forex liquidity drops further by 57%, Central Bank Continues intervention in Forex market to stabilize Naira, Naira to depreciate slightly over $1.52 billion maturing contracts expires, Naira hits N388.84 to $1 at the currency spot market, Investors and Exporters (I&E) window, Naira weakens against the dollar by 1.14% amidst uncertainty, Naira gains against the dollar at I&E window, forex liquidity up by 242%  

Tuesday, 4th May, 2021: The exchange rate between the naira and the US dollar closed at N411/$1 at the official NAFEX window.

Naira depreciated at the Importers and Exporters window to close at N411 to a dollar on Tuesday, representing a N1 decline when compared to N410/$1 recorded on Friday, 30th April 2021.

On the other hand, the naira remained stable at the parallel market as it closed at N485/$1 on Tuesday, 4th May 2021, the same as recorded on the previous day.

Bitcoin dipped by 5.44% on Tuesday as crude oil prices edge closer to $70 per barrel, while Nigeria’s foreign reserve declined by 0.08% to close at $34.88 billion on Friday, 30th April 2021.

READ: Exchange rate gains at NAFEX window as Goldman Sachs predicts oil price at $80

Trading at the official NAFEX window

The naira depreciated against the US dollar at the Investors and Exporters window on Tuesday to close at N411/$1, representing a N1 decline when compared to the N410/$1 that was recorded on Friday.

  • The opening indicative rate closed at N410.5 to a dollar on Tuesday, 4th May 2021, representing a 37 kobo drop when compared to the N410.13/$1 recorded on Friday.
  • Also, an exchange rate of N422 to a dollar was the highest rate recorded during intra-day trading before it settled at N411/$1. It also sold for as low as N395/$1 during intra-day trading, the same as recorded on Friday.
  • Forex turnover at the Investor and Exporters (I&E) window declined by 25% on Tuesday, 4th May 2021.
  • Data tracked by Nairametrics from FMDQ showed that forex turnover reduced from $56.81 million recorded on Friday, 30th April 2021 to $42.59 million on Tuesday, 4th May 2021.

Cryptocurrency watch

Bitcoin, the world’s most popular cryptocurrency, dipped by 5.46% on Tuesday, 4th May 2021 to trade at $54,096.96 as of 11:22 pm.

  • The highly sought-after digital asset lost about $2,743 in a single-day trade, coming on the back of comments made by the Vice-Chairman of Berkshire Hathaway, Charlie Munger.
  • Mr Munger expressed disdain towards the digital asset, describing it as a disgusting development and contrary to the interests of civilisation.
  • Also, Ethereum recorded a 2.47% decline having soared past $3,000 in the previous day’s trading session.
  • The total crypto market capitalisation slumped by 4.28% to close at $2.16 trillion on Tuesday.
  • Bitcoin Depot, a US company, has launched 355 new teller machines across the United States. The announcement comes as the number of ATM locations supporting crypto-fiat exchange now exceeds 19,000 globally.

Crude oil price

Oil prices edged closer to $70 per barrel on Tuesday as Brent Crude gained 2.8% to trade at $69.45.

  • Oil prices rose to the highest level in about seven weeks, as oil demand rebounds in the United States and Europe despite the continual tragic spike in the Covid-19 numbers witnessed in India.
  • The oil complex was also supported on Tuesday by a weaker U.S. dollar, which fell after Monday’s data showed that U.S. manufacturing activity grew in April at a slower pace than expected.
  • This came on the back of the expected economic and oil demand recovery, owing to the easing of lockdown restrictions by U.S. states towards a full reopening of the economy.
  • The bullish run in the global oil market is in line with Goldman Sachs’ prediction that oil prices will rise to $80 per barrel this summer.

External reserve

Nigeria’s external reserve plunged for the 10th consecutive day on Friday, 30th April 2021 as it dipped $27.74 million to close at $34.88 billion.

  • The nation’s foreign reserve declined from $34.91 billion recorded as of Thursday, 29th April 2021 to $34.88 billion on Friday, representing a 0.08% decline.
  • Nigeria’s foreign reserve has dipped $373.57 million since 16th April 2021 to date.

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Currencies

Naira falls against US dollar as CBN extends Naira4dollar scheme indefinitely

The exchange rate between the naira and the US dollar, closed at N411/$1 at the I&E Window.

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Thursday, 6th May 2021: The exchange rate between the naira and the US dollar, closed at N411/$1 at the Importers and Exporters window, where forex is traded officially.

Naira fell against the US dollar to close at N411 to a dollar on Thursday, 6th May 2021, representing a 50 kobo decline when compared to N410.5/$1 that was recorded on Wednesday, 5th May 2021.

Meanwhile, the naira maintained stability at the parallel market as it closed at N485/$1, while Nigeria’s external reserve plunged $28.94 million to close at $34.76 billion on Wednesday, 5th May 2021.

Also, the apex bank issued an indefinite extension to its Naira4dollar scheme for foreign remittances, which was introduced some months ago. This is aimed at sustaining the country’s foreign exchange market liquidity.

READ: Naira gains at NAFEX window as dollar supply improves by 305%

Trading at the official NAFEX window

The naira depreciated against the US dollar at the Investors and Exporters window on Thursday to close at N411/$1, representing a 50 kobo decline when compared to the N410.5/$1 that was recorded on Wednesday.

  • The opening indicative rate closed at N410.37 to a dollar on Thursday, 6th May 2021, representing a 12 kobo depreciation when compared to the N410.25/$1 recorded on Wednesday.
  • Also, an exchange rate of N420.9 to a dollar was the highest rate recorded during intra-day trading before it settled at N411/$1. It, however, sold for as low as N400/$1 during intra-day trading.
  • Forex turnover at the Investor and Exporters (I&E) window declined by 38.4% on Thursday, 6th May 2021.
  • A cursory look at the data tracked by Nairametrics from FMDQ showed that forex turnover decreased from $172.52 million recorded on Wednesday, 5th May 2021 to $106.34 million on Thursday, 6th May 2021.

READ: Exchange rate depreciates at NAFEX window as Bitcoin slumps by over 5%

Cryptocurrency watch

Bitcoin, the world’s most popular cryptocurrency, slumped by 2% on Thursday to trade at $56,358.03.

  • As of 11:31 pm on Thursday, the highly valued cryptocurrency asset witnessed a decline despite soaring as high as 5.5% on Wednesday.
  • However, Ethereum recorded a marginal growth of 0.07% to close at $3,530.75, capitalising on the 9.1% gain recorded in the previous day.
  • The total crypto market capitalisation depreciated by 0.53% to close at $2.33 trillion on Thursday.
  • Meanwhile, payments giant, Visa and financial services provider TALA have partnered to boost cryptocurrency adoption in emerging markets.
  • This partnership is aimed at easing the process of converting, storing and using cryptocurrencies by the underbanked consumers.

READ: Naira depreciates as dollar sales top $100m a day at I&E window

Crude oil price stalls

Crude oil prices witnessed a bearish trading session on Thursday, 6th May 2021 as the oil price rally stalled due to the worsening covid-19 crisis in India.

  • Brent Crude dipped by 0.97% on Thursday to close at $68.29 compared to its closing price of $68.96 recorded at Wednesday’s trading session.
  • The decline in oil prices, which cut short the rally to $70 a barrel was due to a fresh record of new daily coronavirus cases reported by the third-largest importer of oil in the world.
  • Also, according to energy analytics firm OilX, China’s crude oil imports fell by 11% in April 2021 to stand at 10.41 million barrels per day.

External reserve

Nigeria’s external reserve plunged for the 12th consecutive day on Wednesday, 5th May 2021 as it dipped $28.91 million to close at $34.76 billion.

  • The nation’s foreign reserve declined from $34.79 billion recorded as of Tuesday, 4th May 2021 to $34.76 billion on Wednesday, representing a 0.28% decline.
  • Nigeria’s foreign reserve has dipped $497.36 million since 16th April 2021 to date.
  • Nigeria will hope to boosts its foreign reserve position as oil prices continue to rally high and the CBN intensified effort to encourage dollar remittances into the country.

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Currencies

How rise in oil prices will impact exchange rate

Oil prices are currently inching closer to $70 per barrel as the positive outlook of a return to global economic recovery swells investor sentiments.

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Crude oil prices rebound ease investors’ concerns for Nigeria debt market, How substantial is compliance for the Oil market?, Crude Oil price soars high on new COVID-19 vaccine

Nigeria, Africa’s top oil producer and home to the second-largest reserves on the continent, is expected to benefit from the rise in oil prices in many ways.

Oil prices are currently inching closer to $70 per barrel as the positive outlook of a return to global economic recovery swells investor sentiments.

Historically, there has been a strong positive correlation between crude oil prices and the performance of the Nigerian economy. For example, when oil prices plummeted due to the COVID-19 outbreak and the implementation of lockdown protocols in 2020, the Nigerian government scaled down the budget to align better with the drop in crude oil price.

Now that there is a surge in oil price, we should expect that there would be an increase in government revenue translating to a stirring-up of aggregate demand.

READ: Nigeria records highest trade deficit since 1981

Why oil price is rising

The OPEC+ output restrains, despite the strong recovery of oil consumption, continues to give formidable fitting to bullish sentiments about soaring oil prices.

  • Oil prices are rising as optimism about a strong rebound in fuel demand in developed countries overshadows concerns of full lockdown to curb covid-19 in India.
  • Oil (BRENT) has seen a 34.3% increase Year to Date with the oil price at $69.34 showing an increase of +1.15% as of the time of writing this article.

What it means for the exchange rate

Perhaps the greatest benefit of the recent oil price rise is exchange rate stability. Since the crash in oil prices began in late 2019, Nigeria’s official currency has faced a barrage of sell pressure as local and foreign investors increase demand for the dollar.

This forced the central bank to curtain demand, implementing various forms of capital controls across the economy. With oil prices on the rise, Nigerians can begin to expect the following:

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  • An increase in government revenue, which also means higher dollar earnings and thus increased FX reserves. Nigeria’s FX reserve reportedly stands at $34.7 billion as of Tuesday, May 4th, 2021. Soaring oil prices strengthen the exchange rate and promote economic growth. This effect trickles down to higher reserves held by the CBN meant for stabilization of the currency.
  • Higher oil prices could also mean a more stable economy thus propelling economic growth. This, in turn, attracts foreign investor dollars or at least retains what we already have and reduces the pressure on demand.
  • Nigerians have intensified diversifying their currency holdings, keeping less of naira and holding more dollars as they hedge against depreciation. This has kept the pressure on the exchange rate over the last one and a half years. This trend could reverse if oil prices continue their steady rise.

READ: Dangote: Cement price from our factories is between N2,450 and N2,510 per bag, VAT inclusive

The implication? The parallel market exchange rate might appreciate closer to the NAFEX rate if this trend continues.

Hence, it is safe to presume that as the world resume business and travel activities, the demand for Black Gold will continue to increase, and with supply held steady by OPEC+ we can speculate that this is enough catalyst to relieve the pressure of FX demand and increase our foreign reserves thereby propelling growth.

However, the inclusivity of this growth may still be in question.

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