Exchange rate is back to N470/$1 as external reserve continues its decline

The Naira depreciated against the dollar to close at N470/$1 on Tuesday.

Nigeria’s exchange rate at the NAFEX window appreciated against the dollar to close at N385.75/$1 during intraday trading on Tuesday, September 29.

In contrast, the naira depreciated against the dollar, closing at N470/$1 at the parallel market on Tuesday, September 29, 2020, as Nigeria’s external reserve declines by $69 million within 1 week due to pressure in the foreign exchange market.

Parallel market: At the black market where forex is traded unofficially, the Naira depreciated against the dollar to close at N470/$1 on Tuesday, according to information from Abokifx, a prominent FX tracking website. This represents a N3 drop when compared to the N467 that it was exchanged for on Monday, September 28.

Currency developments

  • The local currency has strengthened by about 7.8% within the last one week at the black market, as the CBN 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 $250 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, appeared 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 appreciated against the dollar at the Investors and Exporters (I&E) window on Tuesday, closing at N385.75/$1.

  • This represents a 25 kobo gain when compared to the N386 that it exchanged for on Monday, September 28.
  • The opening indicative rate was N386.50 to a dollar on Tuesday. This represents a 25 kobo drop when compared to the N386.25 that was recorded on Monday.
  • The N389.37 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 N380/$1 during intraday trading

Forex turnover: Forex turnover at the Investor and Exporters (I&E) window, declined by 9.9% on Tuesday, September 29, 2020.

  • Forex turnover dropped from $133.73 million on Monday, September 28, 2020, to $120.51 million on Tuesday, September 29, 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 drop in forex supply 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 August was about $857 million, compared to $937 million in July.
  • According to Reuters, the naira could weaken at the black market this week following the cut of interest rate by the CBN after the MPC meeting to boost credit as it works to stimulate the Nigerian economy that is heading towards a recession.

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