Dollar Selloff Temporary, Be Wary In Coming Weeks — Analysts

The appreciation of the naira wit­nessed in the black market segment of the foreign exchange market to­wards the end of last week has been described as a temporary reprieve by analysts, who warned that it may de­preciate in the coming weeks.

The naira, since Wednesday, last week, gained between N200 and N240 against a dollar. The dollar was exchanged for N900, N920 and N940, depending on the location or volume until the evening of Wednesday, last week, when it began to drop.

 As at the time of filing in this report, a dollar was exchanged for between N640 and N660.

While a cross section of analysts, who spoke to Daily Independent, believe that the appreciation was as a result of the backlash of the panic buying witnessed in the last two weeks due to the reaction to the plan of the CBN to redesign three naira denominations, others said it may be the handiwork of the CBN to calm the situation.

Just as the theory of supply and demand helps in determin­ing prices in a free market, rising demand and improved supply have contributed to moderating rate.

There have been questions about what triggered the im­proved supply of FX in the black market last week. However, there were reports that the U.S. will re­strict the acceptance of dollars printed below 2021, to checkmate the dollar stockpile in Africa.

This speculation put some FX hoarders on their feet, who do not want to be caught un­awares, incentivising them to convert their FX for naira.

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There have been concerns in the past week by analysts that the fall of the local currency in the past weeks was rather specu­lative than intrinsic.

They claimed that the move by the anti-graft agency to arrest traders selling the U.S. dollar at a higher rate was aimed at serving as a deterrent to others, whilst discouraging currency specu­lation.

According to black market operators, the exchange rate between the naira and the dol­lar appreciated by 8.72 percent on Friday, November 11, 2022, to close at N660/$1 from N700/$1 recorded on Thursday.

In the last four days, the local currency recorded significant gains against the dollar from a record low of N920/$1 recorded in the previous week. The ex­change rate has now touched its highest level since August 19, 2022. It is worth noting that the rate varies across various loca­tions and depend on the trans­action volume.

However, the naira closed against the dollar at N446.1/$1 at the I&E window on Friday. This represents a slight depreci­ation of 0.1 percent in contrast to N445.67/$1 that was recorded in the previous trading session.

FX turnover at the official market fell slightly by 3.29 per­cent to $89.95 million on Thurs­day, compared to $93.01 million that was traded on Wednesday.

Nigeria’s external reserve de­clined by 0.07 percent to stand at $37.247 billion as of November 9, 2022, in contrast to $37.272 billion recorded as of the previous day.

Furthermore, an exchange rate of N447/$1 was the high­est rate recorded during in­tra-day trading before it settled at N446.1/$1, while it traded as low as N415/$1 during intra-day trading.

A total of $89.95 million in FX value was traded at the Inves­tors and Exporters window on Thursday, which is 3.29 percent lower than the $93.01 million traded on Wednesday.

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In conversations with several blackmarkettradersattheweek­end, Daily Independent gathered that the dollar was selling with­in N700/$ and N650/$ for cash transactions, representing about a 30 percent gain from N900/$1 recorded the previous weekend.

These traders attributed the sudden improvement in the local currency to eased demand and increased inflows of FX in the market.

Mr. Sanni Mohammad, a forex trader in Lagos, said, “The changes in the rate are really very sudden, but it is as a re­sult of increased dollars in the market compared to the high demand in the previous week.”

Another trader, Mohammed Mandara, opined they have seen increased supply and very few people are buying due to fear that the exchange rate could appreci­ate further.

Sources also indicate there was the injection of forex in the market by the central bank even though there is no official record backing this claim.

FX traders attributed the changes in the exchange rate to the decline in the demand for dollars in the market.

Malam Ilyasu Gindi at the Murtala Muhammed Inter­national Airport said that the demand for FX has decreased significantly compared to what it was in the last two weeks.

“On Friday morning, I bought dollars at the rate of N720/$1, and by evening, I bought at the rate of N670/$1 because a lot of people are now bringing dollars into the market to sell,” he said.

Oladejo Emmanuel, an econ­omist, is of the opinion that there must be a behind the scene inter­vention by the apex bank to tame the trend that had characterised the black market segment and bring a sudden calm into the economy.

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He said, “If you noticed, you will see that the drop of about N200 on Thursday was so sudden and must have been influenced by higher interven­tion and I suspect the CBN or its agents”.

Matthew Ogagavworia, a financial analyst, told Daily Independent that the sudden ap­preciation might have been as a result of several factors.

He said, “One factor is that of Nigerians who speculated that the dollar will continue to rise because most illicit funds will find their way to BDCs. Some of them went on their own and brought in their genuine mon­ey in anticipation that the dollar will soon rise beyond N1000.

“The sudden drop we are seeing could be as a result of the slowdown in commercial activi­ties due to the approach of year end. Most traders do cool their de­mand for forex for the purpose of import as the year runs to an end.

“There is also the expectation that once a new government comes in after the election, the atmosphere may change and the naira may gain confidence and you will not be able to sell the dollar even at the price you bought it.

“We are also faced with the possibility that the CBN’s spot­light on the activities of BDC operators to prevent them be­coming a dumping ground for illicit money stashed in drums and water tankers could be re­sponsible.

“I suspect these BDC oper­ators have been sluggish in ac­cepting big sums of naira. They are in fact rejecting large cash.

“Though, as good as it may look, I think this is a temporary calmness except if the regulato­ry authority did not go back to sleep as they used to do in cases similar to this.”

This time, last year, the ex­change rate appreciated from about N577/$ in early October to about N535/$ by mid-November.

The exchange rate at the black market will eventually close the year at about N575/$ by late December before closing the year at N560/$.

Predicting the exchange rate is an incredibly difficult under­taking as a dynamic interplay between demand and supply is the official determinant.

We also anticipate an influx of forexfromdiasporaNigerians during the Christmas holiday in December as is usually the case every year. This will positively impact FX rates.