Naira gains again across forex markets as dollar supply rises significantly

The Naira appreciated against the dollar, closing at N476/$1 at the parallel market on Thursday,

By Chike Olisah

Forex turnover rose significantly by 96.6%, as the Naira’s exchange rate at the NAFEX window appreciated marginally against the dollar to close at N394.60/$1 during intra-day trading on Thursday, December 10.

Also, the Naira appreciated against the dollar, closing at N476/$1 at the parallel market on Thursday, December 10, 2020, as the naira is expected to trade within a range across markets after the local currency received a boost from CBN’s easing of restrictions on diaspora remittances according to Reuters.

ABCON President, Aminu Gwadebe, had blamed the crash of the naira on illegal activities that include hoarding, speculation, illegalcash evacuations through the nation’s borders, use of the dollar for gratification and so on.

Parallel market: According to information from Abokifx – a prominent FX tracking website, at the black market where forex is traded unofficially, the Naira appreciated against the dollar to close at N476/$1 on Thursday.

This represents a N2 gain when compared to the N478/$1 that it exchanged for on Wednesday, December 9.

• 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
• However, the gains appear to have been completely erased with the recent crash of the exchange rate.
• The CBN has sold over $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.
• Despite the CBN intervention, 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 Tuesday, closing at N394.60/$1.

• This represents a 7 kobo gain when compared with the N394.67/$1 that it exchanged for on Wednesday, December 9.
• The opening indicative rate was N392.79 to a dollar on Thursday. This represents a N1.30 drop when compared to the N391.49 that was recorded on Wednesday.
• The N408.19 to a dollar was the highest rate during intra-day trading before, it still closed at N394.60 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 increased by 96.6% on Thursday, December 10, 2020.
• According to the data tracked by Nairametrics from FMDQ, forex turnover rose from $71.24 million on Wednesday, December 9, 2020, to $140.07 million on Thursday, December 10, 2020.
• The CBN is still struggling to clear the backlog of foreign exchange demand, especially by foreign investors wishing to repatriate their funds.
• The increase in dollar supply after the previous trading day 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 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.
• Some members of MPC of the CBN had 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.

Chike Olisah

Chike Olisah is a graduate of accountancy with over 15 years working experience in the financial service sector. He has worked in research and marketing departments of three top commercial banks. Chike is a senior member of the Nairametrics Editorial Team. You may contact him via his email- chike.olisah@nairametrics.com.