Forex market: Uncertainty persists despite Naira gains against Dollar

By Odunewu Olusegun

Despite the improved turnover recorded on Thursday, the volatility and uncertainty of the forex market still persist due to accumulated demand and liquidity shortages across markets.

At the black market where forex is traded unofficially, the naira appreciated marginally by N1 to a dollar to close at N461 to a dollar on Thursday, as against the N462 to a dollar on Wednesday.

The exchange rate at the beginning of the week was N460 to a dollar. By crossing N460, the exchange rate has broken a psychological ceiling going past N460 for the first time since 2017.

The Forex turnover at the Investor and Exporters (I&E) window had a rebounded on Thursday, July 2, 2020, as it rose by 1876% day on day, a massive increase from what was recorded the previous day at the foreign exchange market.

This is according to data from the FMDQOTC, an exchange where forex is traded by foreign investors and exporters.

According to the data tracked, forex turnover increased from $10.37 million on Wednesday, July 1, 2020, to as high as $204.90 million on Thursday, July 2, 2020,  representing a massive 1876% increase on a day-to-day basis. This also represents a major departure from the low forex supply since January 2020, the last time the market hit a $200 million turnover mark.

The further decline in liquidity could further fuel speculations in the black market where the exchange rate has traded at a premium of N60+ over the last few weeks. The CBN claims most of the demand being cited is not represented by any official documentation and that it has informed foreign investors with genuine forex demand to be “patient” and that they will get their forex.

According to a July 2020 report from Moody’s, the foreign currency funding gap for Nigerian banks is expected to rise to $5 billion due to the current low oil prices, volatile forex inflows and lower diaspora remittances amid the coronavirus pandemic. These challenges are threatening to renew the foreign currency liquidity pressures that hit Nigerian banks during the previous oil crisis in 2016-2017.

The report also indicated that dollar shortages are expected to persist over the next 12-18 months if low oil prices continue thereby renewing the forex liquidity crisis that led to severe rationing of dollar and ban on importation of some items during the last oil price crash in 2015-2017.