Naira weakens at black market as external reserves loses $42 million in 1 week
- 14th October 2020
- Posted by: Hakeem
- Category: Currencies
Nigeria’s exchange rate at the NAFEX window remained stable against the dollar to close at N386/$1 during intraday trading on Tuesday, October 13.
Also, the naira depreciated marginally against the dollar, closing at N461/$1 at the parallel market on Tuesday, October 13, 2020, as the external reserve drops by $42 million in 1 week.
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 N461/$1 on Tuesday. This represents a N1 drop when compared with the N460 that it exchanged for on Monday, October 12.
- 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 remains stable against the dollar at the Investors and Exporters (I&E) window on Monday, closing at N386/$1.
- This was the same rate that it exchanged for on Monday, October 12.
- The opening indicative rate was N386.38 to a dollar on Tuesday. This represents a 5 kobo drop when compared to the N386.33 that was recorded on Friday.
- The N392.78 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 again by 22.3% on Tuesday, October 13, 2020.
- According to the data tracked by Bigwig FX from FMDQ, forex turnover dropped from $102.35 million on Monday, October 12, 2020, to $79.53 million on Tuesday, October 13, 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.