Forex turnover rose sharply by 303.6%, as the Naira’s exchange rate at the NAFEX window remained stable against the dollar to close at N393.25/$1 during intra-day trading on Thursday, November 26.
Also, the naira crashed again to a new record low against the dollar, closing at N495/$1 at the parallel market on Thursday, November 26, 2020, as some CBN forex policies restrict access to dollars on official window thereby putting more demand pressure on the black market.
Parallel market: The Naira depreciated against the dollar to close at N495/$1 on Thursday, representing an N8 drop when compared to the N487/$1 that it exchanged for on Wednesday, November 25.
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 had remained volatile after the initial gains made, following the CBN’s resumption of sales of dollars to the BDCs.
President of the Association of Bureau De Change Operators, Aminu Gwadebe, said he expected 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 remained stable against the dollar at the Investors and Exporters (I&E) window on Wednesday, closing at N393.25/$1.
This was the same rate that it exchanged for on Wednesday, November 25.
The opening indicative rate was N388.15 to a dollar on Thursday. This represents a N1.86 drop when compared to the N386.29 that was recorded on Wednesday.
The N394 to a dollar was the highest rate during intra-day trading before, it still closed at N393.25 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 303.6% on Thursday, November 27, 2020.
Forex turnover rose from $52.09 million on Wednesday, November 25, 2020, to $210.25 million on Thursday, November 26, 2020.
The CBN is still struggling to clear the backlog of foreign exchange demand, especially by foreign investors wishing to repatriate their funds.
The sharp increase in dollar supply after the previous trading day’s 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.
An expert had stated he expected 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 had also 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.