On January 8, 2020, the exchange rate between the naira and dollar closed at N393.50/$1, the fifth trading day of 2021 at the Investors and Exporters’ (NAFEX) window where forex is traded officially.
This is an appreciation from the N393.67 recorded on the previous trading day, January 7, 2021.
Over 100% improvement in dollar supply is occurring at the same time there was a price increase on Friday, sustaining the previous trading day’s increase.
We also reported last week that the latest round of adjustment at the I&E window is temporary as the rates could fall back below N400/$1.
However, at the black market where forex traded unofficially, the exchange rate depreciated to close at N472/$1 on Friday, January 8, 2021, breaking the almost 2 weeks period of stability. This represents a N2 drop when compared to N470/$1 it closed at the previous trading day January 7, 2021. It has been trading at N470/$1 since the 29th of December 2020.
The exchange rate disparity between the parallel market and the official market widened again to N78.50, representing a 16.7% devaluation differential.
The Naira appreciated against the dollar at the Investors and Exporters (I&E) window on Friday, closing at N393.50/$1 as against N393.67 reported on January 7, 2021.
- This represents a 17 kobo gain when compared with that of the previous trading day.
- The opening indicative rate was N393.49 to a dollar on Friday. This represents a 20 kobo gain when compared to the N393.69 that was recorded on Thursday, January 7, 2021.
- The N413.85 to a dollar was the highest rate during intra-day trading before, it still closed at N393.50 to a dollar. It also sold for as low as N380/$1 during intra-day trading.
- Forex turnover: Forex turnover at the Investor and Exporters (I&E) window increased by 102.5% on Friday, January 8, 2021.
- According to the data from FMDQ, forex turnover rose from $32.41 million on Thursday, January 7, 2021, to $65.63 million on Friday, January 8, 2021.
- 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.
- 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.
Can the naira sustain below N400?
On Thursday, December 31, 2020, the central bank allowed the exchange rate to depreciate to N410.25 as a late demand surge forced prices higher.
Even though the highest price for the day was N413.85, the market still closed lower at N393.50 as the trend from the previous trading day continued, blowing any initial belief that a devaluation had occurred last week.
Devaluation supporters who had expected this to be a nudge towards “market reality” will be surprised by the appreciation recorded on Monday, suggesting that the central bank will continue with the defence of the local currency in the new year. On the flip side, policy supporters will cite this as the effect of market forces.