Forex trading posts biggest weekly gain in 8 months

Trading activity in Nigeria’s spot foreign exchange (FX) market posted its biggest weekly gain since September 2, 2016, according to data compiled by BusinessDay and sourced from FMDQ.

Transactions between the banks and their clients in the week ended April 28, stood at $1.1 billion (average daily turnover of $222.36 million), representing a 170.27 percent increase from the $411.36 million (average daily turnover of $102.84 million), recorded the previous week.

Activity among banks for the same trading week revealed a 49.35 percent increase to $105.08 million (average daily turnover of $21.02 million) from $70.36 million (average daily turnover of $17.59 million) reported the previous week.

Africa’s largest economy has faced chronic dollar shortages in the wake of a slump in sales of and prices for crude oil, its mainstay, which has slashed foreign exchange earnings, weakened the naira currency, stoked inflation and pushed it into a recession.

The Central Bank’s dollar management policy exacerbated the dollar crunch, sidelining foreign portfolio investors.

The apex bank has however ramped up dollar sales in the last two months, selling about $3 billion in spot and forward transactions to prop up the ailing naira and boost dollar liquidity in the market.

It introduced in April, a special window for Investors and Exporters, in its latest attempt to beat the dollar crunch.

Investors are said to have welcomed the move and are watching for signs that the bank’s governor Godwin Emefiele will keep his words to allow for flexible trading in the new window.

“Market-determined rates at Nigeria’s new FX window are positive. However, we think sustained restrictions will hold off a meaningful recovery,” said Yvonne Mhango, sub-Saharan Africa economist at Renaissance Capital.

“Nigeria’s new investors’ and exporters’ (I&E) FX window allows trades at a market-determined rate. Of all the other rates in Nigeria, we think this is the best indicator of where the market thinks the naira should be trading,” Mhango said in a May 8 note.

The naira opened at N381.11 per dollar at the I&E window on Monday, May 8, and was quoted at N391 per dollar on the black market. The currency has however hovered around N305 per dollar at the official market for five months now.