After Months of Instability, The Naira Becomes Stable on The Forex Market After BDCs Gets Allocations for the Dollar

After months of Instability, The Naira Becomes Stable on The Forex Market After BDCs Gets Allocations for the Dollar

After a long period of inflation, the Nigerian economy is becoming increasingly stable as seen on Thursday when the local currency stayed stable against the dollar at N467/$1. Naira has realized a week of stability on all forex markets with a 43% improvement. During the intraday trading on Thursday, September 24, at the NAFEX window, the currency’s exchange rate was N386/$1. And the same day, the currency exchange rate closed at N467/$1 at the parallel market at the end of another BDC allocation round by CBN. The Naira also remained stable at unofficial forex black markets against the dollar at N467/$1, at the same rate the currency traded for the previous day.

Currency Developments

  • Nigeria’s currency has gained strength by about 7.8% compared to the previous week at the black market when measures were introduced by the CBN focused on importers and exporters, so as to attempt to increase the supply of dollars on the forex market and to decrease trader’s demand for forex. 
  • Since Monday, September 7, 2020after the resumption of sales, the CBN has sold more than $200 million to BDCs. This was expected to reduce speculation, hoarding, and increase liquidity to the retail side of the forex market.
  • Notwithstanding, the Naira has failed to maintain the first gains made in its exchange rate against the dollar when plans by the CBN to provide liquidity was announced.
  • BDC administrators have encouraged the Apex Bank to reexamine the margin approved for the forex brokers, as it was not enough to meet their expenses.
  • It was likewise noticed that forex brokers in Nigeria monitored during the earlier week, seemed to hoard forex, as they expected further plunge in the market.
  • Speculative buying in foreign exchange has dropped, despite the fact that demand build-up by foreign investors and manufacturers increase the pressure, and makes the situation in the foreign exchange market more volatile.
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NAFEX: The Naira stayed stable closing at N386/$1 against the  dollar on Thursday at  the I&E window.

  • The currency had this same rate on Wednesday, September 23.
  • On Thursday, it opened at N386.13  rate against the dollar on. As compared to the N386.44, there is an indication of a 31 pip profit to a dollar, that was registered on Wednesday.
  • This amount, N390.34 to a dollar increase, has been the currency’s highest intraday exchanging, which eventually closed at the N386/$1 rate. It additionally sold at the intraday trading for as low as N383/$1.

Forex turnover: On Thursday, September 24, 2020, the forex revenue at the I&E window had a 42.6% increase.

As per the information released by Nairametrics from FMDQ,  On Wednesday, September 24, 2020, forex turnover increased from $69.22  million  to  $98.65  million  the next day.

The CBN had in the previous weeks made efforts to clear the stockpile from forex trade demand, particularly by fx speculators wishing to localize back their assets.

After the drop of Wednesday, the improvement in the supply for forex strengthened the foreign exchange market volatility. The dollar’s supply has been on a decrease for quite a long time because of low oil costs and the foreign capital inflow absence into the nation.

For last week, the average sale for forex was over $34.5 million, which indicates a decrease from last week’s  $58.52 million that was recorded.

In the month of August, the total foreign exchange trading at the NAFEX window was over $857 million, contrasted with $937 million in the month of July.

In recent reports with regards to foreign trade, credit, monetary, and exchange policy guidelines for the 2020/2021 financial year, the forex market pressure was noted by the CBN, which is because of activities of speculation in the BDC and I&E sections of the forex trade market, is likely to put more pressure on the exchange rate of the naira.

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