Low demand for dollars on the foreign exchange markets, due to the lockdown occasioned by the coronavirus (COVID-19) pandemic, is masking rising pressure on the naira, traders have said.
According to the leading non-bank currency broker on the continent, AZA, not even the failure of the agreement reached by the Organisation of Petroleum Exporting Countries (OPEC) to bolster oil prices has had the sort of negative impact on the naira that analysts expected.
In a note obtained by New Telegraph yesterday, the firm said: “Gloom over OPEC’s seeming inability to withstand further slumps in global oil prices left the naira surprisingly unscathed, and even slightly appreciating in the parallel market to 410.5 per dollar from 412.5 last week. One reason is that, with Nigerians on lockdown, there is less demand for dollars, both for consumer spending and production inputs. The corollary of this false stability is that an eventual return to normal business in Nigeria could actually drive the Naira to weaken as dollar demand picks up again.”
Also, in the firm’s latest “Cowry Weekly Financial Markets Review and Outlook (CWR)”released at the weekend, analysts at Cowry Asset Management Limited said: “Naira remained unchanged against USD at the Bureau De Change market to close at N405/USD. Similarly, NGN/USD closed flat at the Interbank Foreign Exchange market, at N358.51/USD amid weekly injections of $210 million by CBN into the foreign exchange market.”
However, citing dwindling external reserves, the analysts stated that “in line with our expectations, Naira depreciated further at the Investors and Exporters FX Window (I&E FXW) as well as the parallel (“black”) markets by 0.34 per cent and 0.24 per cent to close at N386.13/USD and N416/USD respectively as external reserves nosedived to $33.84billion on Thursday, April 16, 2020 from $34.40billion on Thursday, April 9, 2020.”
In addition, the analysts said they are expecting marginal depreciation of the naira against the dollar especially at the I&E FX window this week due to declining external reserves.
Commenting on activities in the forex market, a forex dealer, Mr. Amos Uka, told New Telegraph that the lockdown had resulted in a sharp drop in demand for dollars, thereby masking the pressure on the naira.
He said: “With the entire economy shut down and the borders closed, why would anyone want to buy dollars? So, the lockdown has definitely affected forex demand. This is probably why most people don’t realise that the naira is still under pressure.”
The Central Bank of Nigeria (CBN) had on March 20 responded to immense pressure on the naira, which was triggered by the slump in oil prices and the falling external reserves, by technically devaluing the local currency from N306/1$ to N360 on the official market and from N360/1$ to N380 per dollar on both the Bureau De Change (BDC) segment of the forex market and the I&E window.
The apex bank had also late last month suspended the sales of foreign exchange to BDCs, a development, that analysts said resulted in scarcity of dollars in the market.