FMDQ Securities Exchange Limited reported last week that foreign exchange transactions at the Investors’ & Exporters window fell by 24.56 per cent.
The Central Bank of Nigeria established the I&E window in April 2017 in response to significant forex scarcity, to increase liquidity in the forex market and ensure timely execution and settlement of qualifying transactions.
The overall value of transactions at the I&E window was $415.05m last week, down from $550.14m the previous week. It said that total turnover in the currency spot and futures markets fell to $539.47 million from $692.60 million the previous week.
The week-on-week increase in turnover was driven by a 24.56 per cent ($135.09m) reduction in the forex spot and a 12.66 per cent ($18.04m) decrease in forex derivatives turnover, according to the exchange. According to the report, the drop in forex derivatives turnover was caused by a 4.92 per cent drop in forex forwards turnover and a 100 per cent drop in forex futures turnover.
The average Nigerian Autonomous Foreign Exchange Fixing rate, according to FMDQ Exchange, was N411.22/$, down from N411.17/$ the previous week, representing a 0.01 per cent depreciation of the naira versus the dollar.
It claimed the naira fell by 1.02 per cent versus the dollar on the parallel market, with an average exchange rate of N515.80/$ compared to N510.60/$ the previous week.
According to Financial Derivatives Company Limited, the Nigerian forex market is split with numerous exchange rates, the most important of which being the I&E window.
“No less than 55 per cent to 60 per cent of Nigerian FX transactions are handled at this window,” FDC analysts wrote in a study released on Friday. This window is used by the CBN as well as the majority of exporters and investors.
“It serves as not only a source of price discovery but also a barometer for measuring potential and actual CBN intervention in the market. Some of the exchange rate determinants are balance of payments, capital inflows and trade balance”.
Speculative actions in the parallel market, according to FDC analysts, will keep the exchange rate unpredictable in the next weeks.
“However, upon receipt of the IMF’s SDR credit of $3.35bn expected on August 23, we expect gross external reserves to increase to about $34bn. This will provide more support for the CBN to support the currency and lead to a further convergence of the exchange rate around the I & E window,” they added.