Naira gains value at NAFEX window as Oil prices approach $60 mark

On February 5, 2021, the exchange rate between the naira and the dollar appreciated closing at N396.17/$1 at the NAFEX (I&E Window) where forex is traded officially.

On the parallel market where forex is traded unofficially, the naira exchanged for the dollar at N480/$1 unchanged from the previous days trading.

  • Trading turnover at the I&E window rose significantly by 102.9% as CBN continued with its intervention in the foreign exchange market. Nigeria’s external reserves fell slightly to $36.116 billion as of February 3, 2021, from $36.157 billion as of February 2, 2021, according to data from CBN.
  • The exchange rate disparity between the parallel market and the official market is about N83.83, representing a 21.2% devaluation differential.
  • During the week, the central bank revised its non-deliverable foreign exchange forward contracts pricing the exchange rate for the period ending February 24, 2021 at N412.14.
  • This signaled to investors that the CBN believes the official exchange rate could trade within this range a N17 depreciation from the current average of about N395/$1.
  • Also during the week, the central bank prohibited cryptocurrency-related transactions through the banking system leading to an outcry by young Nigerians who rely on it as a source of livelihood.
  • Brent Crude Oil price is also approaching the $60 mark, a psychological boost for Nigeria’s currency handlers.

Trading at the official NAFEX window

The Naira depreciated against the dollar at the Investors and Exporters (I&E) window on Friday, closing at N396.17/$1. This represents a N1.46 gain when compared to the N397/63/$1 that it closed on the previous trading day.

  • The opening indicative rate closed at N397.17 to a dollar on Friday. This represents a N1.79 drop when compared to N395.38 to a dollar that was recorded the previous trading day on Thursday, February 4, 2021.
  • The N401 to a dollar was the highest rate during intra-day trading before it closed at N396.17 to a dollar. It also sold for as low as N381.50/$1 during intra-day trading.
  • Forex turnover at the Investor and Exporters (I&E) window rose by 102.9% on Friday, February 5, 2021.
  • Forex turnover increased from $47.72 million on Thursday, February 4, 2021, to $96.82 million on Friday, February 5, 2021.

Oil price approaches $60

Brent crude oil price hit about $59.84, highest in more than a year, on Monday morning, as it approaches the $60-dollar mark.

  • This is as OPEC and its allies pledged to continue to cut down on global crude oil inventories and crude stockpiles in the United States fell to their lowest levels since March last year.
  • The 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 a 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.

Higher oil prices drive up Nigeria’s external reserves

  • The external reserve has dropped further to $36.116 billion as of February 3, 2021. However, this is a significant improvement on the $35.373 billion that it was as of December 31, 2020.
  • It was reported that the government may have taken receipt of the $1-1.5 billion World Bank loan. However, excerpts of the CBN Monetary Policy communique of January 26th suggest the inflows may have been driven by higher oil revenues.
  • The external reserves have increased by $743 million since December 31, 2020, when it closed the year at $35.3 billion.
  • 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.

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