Exchange rate gains at NAFEX window as dollar supply improves significantly
- 16th October 2020
- Posted by: Hakeem
- Category: Currencies
Forex turnover rose significantly by 464% as Nigeria’s exchange rate at the NAFEX window appreciated against the dollar to close at N385.67/$1 during intraday trading on Thursday, October 15.
Also, the naira remained stable against the dollar, closing at N462/$1 at the parallel market on Thursday, October 15, 2020 as BDC operators get another round of dollar supply from CBN
This is also despite the continuation of the protest against the special anti-robbery unit (SARS) by the Nigerian youth which has limited movement in major cities across the country especially Lagos.
Parallel market: According to information from Abokifx, a prominent FX tracking website, at the black market where forex is traded unofficially, the Naira remained stable against the dollar to close at N462/$1 on Thursday. This was the same rate that it exchanged for on Wednesday, October 14.
- 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 they 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 Thursday, closing at N385.67/$1.
- This represents a 16 kobo gain when compared with the N385.83/$1 that it exchanged for on Wednesday, October 14.
- The opening indicative rate was N386.04 to a dollar on Wednesday. This represents a 34 kobo gain when compared to the N386.38 that was recorded on Tuesday.
- The N392.78 to a dollar is the highest rate during intraday trading before closing at N385.67. It also sold for as low as N382/$1 during intraday trading.
Forex turnover: Forex turnover at the Investor and Exporters (I&E) window increased significantly by 464% on Thursday, October 15, 2020.
- According to the data tracked by Bigwig FX from FMDQ, forex turnover rose from $29.53 million on Wednesday, October 14, 2020, to $166.55 million on Thursday, October 15, 2020.
- The CBN had in the past weeks moved to clear the huge backlog of foreign exchange demand, especially by foreign investors wishing to repatriate back their funds.
- The huge increase 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 $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.
- The exchange rate is still being affected by low oil prices, dollar scarcity, a backlog of forex demand and shaky economy that has been hit by the coronavirus pandemic