The increasing disparity between official and parallel market exchange rates is causing growing concerns among market participants, as it suggests a rise in demand for foreign exchange on the parallel market, which is generally considered smaller compared to the investor and exporter window.
Market observers point to the ability of the black market to meet demand as a possible cause for the widening difference between the two markets.
The official investor and exporter (I&E) window recorded a closing exchange rate of N742.31 per US dollar, while the average rate on the parallel market stood at N780/$1. This represents the largest discrepancy between the official and parallel market rates since the revised I&E window was launched.
The trading day opened with an exchange rate of N764.31/$1, reaching an intra-day high and low of N820/$1 and N600/$1, respectively. However, the rate retreated and closed at N742.31/$1, stronger than the N768.44 recorded on the previous trading day.
In addition, the volume of foreign currency transactions in the I&E window saw a 21 percent increase, totaling $89.37 million. This reverses the decline in forex turnover witnessed in the previous two trading days.
On the unofficial parallel market, the naira depreciated against the US dollar, closing at N780/$1 on Wednesday. This represents a 0.78 percent decrease from the previous day’s rate of N774/$1 and a N38 divergence from the official exchange rate.
The peer-to-peer (P2P) market, which facilitates the exchange of dollars for cryptocurrency, had an exchange rate of approximately N787.5/$1.
Most traders are closely monitoring activity in the investor and exporter window, which is striving to regain its status as the official destination for currency trading.
Meanwhile, the FMDQ Exchange implemented revised computation methodologies for its foreign exchange rate-fixing products, effective from Wednesday, July 5, 2023. The new approach involves using actual transaction data from the FX market, rather than relying on indicative quotes provided by market participants.
The shift from indicative quotes to actual market transactions is expected to enhance transparency and reduce the vulnerability to manipulation. Analysts believe these changes will have an immediate impact on how foreign exchange rates are determined, as traders gain a better understanding of the true market prices and price discovery is influenced by demand and supply dynamics.
