Exchange rate falls across forex markets as dollar supply drops - NAIRAMETRICS

October 13 2020

The naira depreciated against the dollar, closing at N460/$1 at the parallel market on Monday.

By Chike Olisah

 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%.

Forex turnover dropped by 24% as Nigeria's exchange rate at the NAFEX window depreciated against the dollar to close at N386/$1 during intraday trading on Monday, October 12.

Also, the naira depreciated against the dollar, closing at N460/$1 at the parallel market on Monday, October 10, 2020, as the Bureau De Change Operators await another round of dollar supply from the Central Bank of Nigeria.

Parallel market: At the black market where forex is traded unofficially, the Naira depreciated against the dollar to close at N460/$1 on Monday, according to information from Abokifx, a prominent FX tracking website.

Current 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 $450 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 depreciated against the dollar at the Investors and Exporters (I&E) window on Friday, closing at N386/$1.This represents a 17 kobo drop when compared with the N385.83 that it exchanged for on Friday, October 9. 

  • The opening indicative rate was N386.33 to a dollar on Monday. 
  • This represents a 62 kobo drop when compared to the N385.71 that was recorded on Friday. 
  • The N392.89 to a dollar is the highest rate during intraday trading before it closed at N385.83. It also sold for as low as N384/$1 during intraday trading 

Forex turnover: Forex turnover at the Investor and Exporters (I&E) window, declined by 24.1% on Friday, October 9, 2020.According to the data tracked by Nairametrics from FMDQ, forex turnover dropped from $134.83 million on Friday, October 9, 2020, to $102.35 million on Monday, October 12, 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

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Read Comments

Steven Rich
Sep 17, 2018:
Well done

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