Naira strengthens at NAFEX window despite 38% drop in dollar supply

On January 7, 2020, the exchange rate between the naira and dollar closed at N393.67/$1, the fourth trading day of 2021 at the Investors and Exporters’ (NAFEX) window where forex is traded officially.

This is an appreciation from the N394.50 recorded on the previous trading day, January 6, 2021.

Nairametrics understands that the drop in dollar supply could not prevent price decline on Thursday after the fall recorded in the last 2 trading days.

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 continued to remain stable at N470/$1 on Thursday, January 7, 2021. The exchange rate at the parallel market closed at N470/$1 on the previous trading day January 6, 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 N76.33, representing a 16% devaluation differential.

NAFEX

The Naira depreciated against the?dollar at the Investors and?Exporters (I&E) window on Thursday, closing?at N393.67/$1 as against N394.50 reported on January 6, 2021.

This represents an 83 kobo drop when compared with that of the previous trading day.

The opening indicative rate was N393.69 to a dollar on Thursday. This represents a N2.61 gain when compared to the N396.30 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 N393.67 to a dollar. It also sold for as low as N385/$1 during intra-day trading.

Forex turnover: Forex turnover at the Investor and Exporters (I&E) window declined by 38.3% on Wednesday, January 6, 2021.

According to the data tracked by Nairametrics from FMDQ,?forex turnover dropped from $52.50?million?on Wednesday, January 6, 2021, to?$32.41?million?on Thursday,?January 7,?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?

Last 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 N393.67 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.