Naira stabilizes at NAFEX window as dollar supply improves significantly

The naira remained stable against the dollar at NAFEX to close at N395/$1 during intra-day trading on Friday.

Forex turnover rose sharply by 50.97%, as the Naira’s exchange rate at the NAFEX window remained stable against the dollar to close at N395/$1 during intra-day trading on Friday, December 4.

Also, the Naira depreciated against the dollar, closing at N475/$1 at the parallel market on Friday, December 4, 2020, as the CBN’s new policy on diaspora remittances appear to have deepened dollar supply and reduced pressure on the black market.

The new policy takes off as more forex is expected into the country with more Nigerians in diaspora having more incentive to send money into the country.

ABCON President, Aminu Gwadebe, had blamed the crash of the naira on illegal activities that include hoarding, speculation, illegal cash evacuations through the nation’s borders, use of the dollar for gratification and so on.

Parallel market: According to information from Abokifx – a prominent FX tracking website, at the black market where forex is traded unofficially, the Naira depreciated against the dollar to close at N475/$1 on Friday.

This represents a N5 drop when compared to the N470/$1 that it exchanged for on Thursday, December 3.

  • The local currency had strengthened by about 7.8% within one week in September at the black market, as the CBN introduced some measures targeted at exporters and importers.
  • This is to boost the supply of dollars in the foreign exchange market and reduce the high demand for forex by traders
  • However, the gains appear to have been completely erased with the recent crash of the exchange rate.
  • The CBN has sold over $1 billion to BDCs since they resumed forex sales on Monday, September 7, 2020.
  • This was expected to inject more liquidity into the retail end of the foreign exchange market and discourage hoarding and speculation.
  • However, the exchange rate against the dollar has remained volatile after the initial gains made, following the CBN’s resumption of sales of dollars to the BDCs.
  • Despite the CBN intervention, the huge demand backlog by manufacturers and foreign investors still puts pressure and creates a volatile situation in the foreign exchange market.

NAFEX: The Naira remained stable against the dollar at the Investors and Exporters (I&E) window on Friday, closing at N395/$1.

  • This was the same rate that it exchanged for on Thursday, December 3.
  • The opening indicative rate was N392.38 to a dollar on Friday. This represents a 12 kobo gain when compared to the N392.50 that was recorded on Thursday.
  • The N404.91 to a dollar was the highest rate during intra-day trading before, it still closed at N395 to a dollar. It also sold for as low as N384.50/$1 during intra-day trading.
  • Forex turnover: Forex turnover at the Investor and Exporters (I&E) window rose by 50.97% on Friday, December 4, 2020.
  • Forex turnover increased from $158.42 million on Thursday, December 3, 2020, to $239.17 million on Friday, December 4, 2020.
  • The CBN is still struggling to clear the backlog of foreign exchange demand, especially by foreign investors wishing to repatriate their funds.
  • The sharp drop in dollar supply after the previous trading day’s increase 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 September was about $1.98 billion, compared to $843.97 million in August.
  • The exchange rate is still being affected by low oil prices, dollar scarcity, a backlog of forex demand, and a shaky economy that has been hit by the coronavirus pandemic.
  • Some members of MPC of the CBN have expressed serious concerns over the increasing demand pressure in the country’s foreign exchange market. This is an obligation of manufacturers to their foreign suppliers that continues to increase in the face of dollar shortages.

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