U.S dollar stays firm, Joe Biden to unveil COVID-19 support programs

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On January 12, 2021, the exchange rate between the naira and the dollar closed at N394/$1 at the NAFEX (I&E Window) where forex is traded officially, a depreciation from the N393.33 recorded on the previous trading day, January 11, 2021. 

However, the exchange rate at the black market where forex traded unofficially remained stable at N475/$1. The exchange rate at the parallel market closed at N475/$1 on the previous trading day of January 11, 2021.

READ: Why Nigeria’s external reserves is stuck at $35 billion

The naira had largely maintained stability since the beginning of the year after only depreciating twice this year. The naira traded at N470/$1 for almost 2 weeks since the 29th of December 2020.

The pressure experienced at the forex market can be attributed to a surge in demand and a relatively low dollar supply.

READ: Nigerian Aviation: Exchange rate, 7.5% VAT suspension and other factors to determine survival – Experts

Nairametrics understands that the drop in dollar supply is occurring at the same time there was a price increase on Tuesday, sustaining the previous trading day’s increase. The exchange rate at the I&E window has held steady despite the major depreciation on the last day of trading in 2020 when it closed at N410/$1.

The exchange rate disparity between the parallel market and the official market widened again to N81, representing a 17% devaluation differential.

READ: FG posts 27% revenue shortfall in 2020 as budget deficit hit N6.1 trillion

NAFEX

The Naira depreciated against the dollar at the Investors and Exporters (I&E) window on Tuesday, closing at N394/$1 as against N393.33 reported on January 11, 2021.

  • This represents a 67 kobo drop when compared with that of the previous trading day.
  • The opening indicative rate was N396.95 to a dollar on Tuesday. This represents an N3.26 loss, a significant drop, when compared to the N393.69 that was recorded on Monday, January 11, 2021.
  • The N414.90 to a dollar was the highest rate during intra-day trading before, it still closed at N394 to a dollar. It also sold for as low as N390/$1 during intra-day trading.
  • Forex turnover at the Investor and Exporters (I&E) window declined by 41.6% on Tuesday, January 12, 2021.
  • According to the data tracked by Nairametrics from FMDQ, forex turnover dropped from $61.73 million on Monday, January 11, 2021, to $36.07 million on Tuesday, January 12, 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.

READ: Shares of Dangote Sugar Refinery gains N18.8 billion in the first trading week of 2021

External Reserves Rise

Nigeria’s gross external reserves rose sharply to $36.1 million according to central bank data dated January 11, 2020.

  • This is the highest level since July 2020 and a sign that higher oil prices and steady output levels may be contributing significantly to Nigeria’s foreign exchange position.
  • However, the external reserve is 5% off the $38.2 billion held as this time last year.
  • Nigeria needs the external reserves to hit $40 billion if it is to adequately meet some of the pent up demand that has piled up since 2020 when oil prices crashed and the pandemic caused major economic lockdowns.
  • Nigeria is close to obtaining a World Bank $1.5 billion facility which will boost external reserves when it is disbursed.
  • Nairametrics understand the central bank might be required to devalue further and relax some of its capital controls if it is to receive the funds from the world bank.

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