Naira slides further as forex demand pressure intensifies

The Naira depreciated further against the dollar, closing at N468/$1 at the parallel market on Thursday, November 12, 2020, as demand pressure in the foreign exchange market intensifies.

This represents a N2 drop when compared to the N466/$1 that it exchanged for on Wednesday, November 11.

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 was so as to try to boost the supply of dollars in the foreign exchange market, and reduce the high demand for forex by traders.

The CBN has sold over $500 million to BDCs since they resumed forex sales on Monday, September 7, 2020.

This was expected to inject more liquidity to 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.

The President of the Association of Bureau De Change Operators, Aminu Gwadebe, said he expects 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.

The opening indicative rate was N386.10 to a dollar on Thursday. This also represents a 11 kobo drop when compared to the N385.99 that was recorded on Wednesday.

The N393.57 to a dollar was the highest rate during intra-day trading before it closed at N385.67 to a dollar. It also sold for as low as N383/$1 during intraday trading.

Meanwhile, According to the data from FMDQ, forex turnover dropped from $205.5 million on Wednesday, November 11, 2020, to $189.91 million on Thursday, November 12, 2020.

The CBN is still struggling to clear the backlog of foreign exchange demand, especially by foreign investors wishing to repatriate their funds.

The drop in dollar supply after the previous trading day’s increase 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.