Naira gains across forex markets as banks start payment of remittances in dollars

Forex turnover dropped by 22.9%, as the Naira’s exchange rate at the NAFEX window appreciated marginally against the dollar to close at N394.67/$1 during intra-day trading on Wednesday, December 9.

Also, the Naira appreciated against the dollar, closing at N478/$1 at the parallel market on Wednesday, December 9, 2020, as deposit money bank begin the payment of diaspora remittances in dollars as had been directed by the Central Bank of Nigeria.

Nigeria’s external reserve lost $452 million in about a month as it hits $35.211 billion as at December 4, 2020. The continuous drop in the external reserve will limit CBN’s ability to intervene in the foreign exchange market, thereby putting pressure on the naira.

ABCON President, Aminu Gwadebe, had blamed the crash of the naira on illegal activities that include hoarding, speculation, illegal cash 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 N478/$1 on Wednesday.

This represents a N5 gain when compared to the N483/$1 that it exchanged for on Tuesday, December 8.

• 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.

• This represents a 33 kobo gain when compared with the N395/$1 that it exchanged for on Tuesday, December 8.
• The opening indicative rate was N391.49 to a dollar on Wednesday. This represents a N1.01 gain when compared to the N392.50 that was recorded on Tuesday.
• The N408.18 to a dollar was the highest rate during intra-day trading before, it still closed at N394.67 to a dollar. It also sold for as low as N381/$1 during intra-day trading.
• Forex turnover: Forex turnover at the Investor and Exporters (I&E) window declined by 22.9% on Wednesday, December 9, 2020.
• According to the data tracked from FMDQ, forex turnover dropped from $92.43 million on Tuesday, December 8, 2020, to $71.24 million on Wednesday, December 9, 2020.
• The CBN is still struggling to clear the backlog of foreign exchange demand, especially by foreign investors wishing to repatriate their funds.

• The continuous drop in dollar 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 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.