Naira strengthens at forex market as CBN intervenes in the market

Forex turnover dropped by 31.5%, as Nigeria’s exchange rate at the NAFEX window appreciated against the dollar to close at N385.50/$1 during intra-day trading on Tuesday, November 24.

Also, the naira remained stable against the dollar, closing at N483/$1 at the parallel market on Tuesday, November 24, 2020, as ABCON warns forex speculators against forcefully pushing for the devaluation of the naira to aid their illegal activities.

This is also as BDCs get another dollar allocation from CBN.

The CBN, a few days ago relaxed its earlier policy on banning third parties from having access to foreign exchange routed through Form M.

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 N483/$1 on Tuesday.

This was the same rate that it exchanged for on Monday, November 23.

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. The CBN has sold about $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.The President of the Association of Bureau De Change Operators, Aminu Gwadebe, said he expects the impact of the extra liquidity in the market to be gradual. Despite the drop in speculative buying of foreign exchange, 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 appreciated against the?dollar at the Investors and Exporters (I&E) window on Monday, closing at N385.50/$1.

This represents a 50 kobo gain when compared to the N386/$1 that it exchanged for on Monday, November 23. The opening indicative rate was N385.96 to a dollar on Tuesday. This represents a 9 kobo gain when compared to the N386.05 that was recorded on Monday. The N394.83 to a dollar was the highest rate during intra-day trading before it still closed at N386 to a dollar. It also sold for as low as N382/$1 during intra-day trading.

Forex turnover: Forex turnover at the Investor and Exporters (I&E) window declined by 31.5% on Thursday, November 19, 2020. According to the data tracked by Nairametrics from FMDQ, forex turnover rose from $45.84 million on Monday, November 23, 2020, to $163.87 million on Tuesday, November 24, 2020. The CBN is still struggling to clear the backlog of foreign exchange demand, especially by foreign investors wishing to repatriate their funds. The drop in dollar supply after some trading days of improvement 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. A financial expert and Managing Director of Financial Derivatives had stated that he expects the exchange rate at the parallel market to likely depreciate to N470-N475/$1 in November and December due to low oil prices that will further limit foreign exchange supply. 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.