Exchange rate falls across forex markets despite improved dollar supply

The Naira depreciated against the dollar at the Investors and Exporters (I&E) window on Wednesday.

Forex turnover improved by 135% as Nigeria’s exchange rate at the NAFEX window depreciated after yesterday’s trading day gain to close at N386/$1 during intraday trading on Wednesday, September 23.

Also, the naira depreciated closing at N467/$1 at the parallel market on Wednesday, September 23, 2020, despite another round of forex allocation to BDC operators by CBN.

Parallel Market: At the black market where forex is traded unofficially, the Naira depreciated against the dollar to close at N467/$1 on Wednesday, according to information from Abokifx, a prominent FX tracking website. This represents a N2 drop when compared to the N465/$1 that it exchanged on Tuesday, September 22.

Currency Developments

  • The local currency has strengthened by about 7.8% within the last one week at the black market, as the Central Bank of Nigeria introduced some measures targeted at exporters and importers in order 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 $200 million to BDCs since the 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 failed to sustain the initial gains made after the CBN announced plans to provide liquidity.
  • BDC operators have urged the apex bank to reconsider the margin allowed for the currency traders as it was inadequate to meet their expenses.
  • We also noted that forex traders monitored during the previous week appear to hoard forex as they anticipated further depreciation in the market.
  • There has been a drop in speculative buying of foreign exchange, although demand backlog by manufacturers and foreign investors still puts pressure and creates a volatile situation in the foreign exchange market.

NAFEX: The Naira depreciated against the dollar at the Investors and Exporters (I&E) window on Wednesday, closing at N386/$1.

  • This represents a 20 kobo drop when compared to the N385.80/$1 that it exchanged for on Tuesday, September 22.
  • The opening indicative rate was N386.44 to a dollar on Wednesday. This represents a 26 kobo gain when compared to the N386.70 to a dollar that was recorded on Tuesday.
  • The N390.84 to a dollar is the highest rate during intraday trading before closing at the rate of N386/$1. It also sold for as low as N383/$1 during intraday trading.

Forex Turnover: Forex turnover at the Investor and Exporters (I&E) window increased by 135.3% on Wednesday, September 23, 2020.

  • Forex turnover rose from $29.42 million on Tuesday, September 22, 2020, to $69.22 million on Wednesday, September 23, 2020.
  • The CBN had in the past few weeks moved to clear the huge backlog of foreign exchange demand, especially by foreign investors wishing to repatriate back their funds.
  • The improvement in forex supply after yesterday’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 $34.5 million which represents a drop from the $58.52 million that was recorded the previous week.
  • Total forex trading at the NAFEX window in the month of August was about $857 million compared to $937 million in July.
  • The CBN in the latest report on Monetary, credit, foreign trade and exchange policy guidelines for fiscal year 2020/2021, lamented that forex market pressure which is as a result of speculative activities in the BDC and I & E segments of the foreign exchange market is expected to exert more pressure on the naira exchange rate.

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