Forex

Chinese Yuan Fell to a Four-Year Low

Published

8 years ago

December 14, 2015

Chinese yuan fell to a four-year low after the central bank said the currency shouldn’t be measured by its moves against the dollar alone, a statement that is being interpreted as a sign it will allow further declines.

Exchange rates are a reflection of trade and investment with multiple countries and the market has to take into account the yuan’s fluctuations against a basket of currencies, the People’s Bank of China said on Friday. The China Foreign Exchange Trade System, which is run by the PBOC to facilitate interbank trading, published a new yuan index composed of 13 currencies, with the dollar accounting for 26.4 percent.

The yuan dropped 0.06 percent to close at 6.4591 a dollar in Shanghai, according to CFETS prices. It earlier declined to 6.4665, the weakest since July 2011. While the currency has retreated 3.9 percent against the greenback this year, it has advanced against 11 of 16 major currencies tracked by Bloomberg. The PBOC on Monday cut its reference rate by 0.21 percent to a four-year low of 6.4495.

“The latest move suggests the PBOC will allow weaker yuan fixings,” said Tommy Ong, managing director for treasury and markets at DBS Hong Kong Ltd. “The yuan is also under pressure as the U.S. is likely to hike rates this week.”

Weakening Signals

The central bank has lowered the reference rate, which limits the onshore currency’s moves to 2 percent on either side, on eight of the 10 trading days since winning reserve-currency status at the International Monetary Fund on Nov. 30. This fueled speculation that the authority is trying to release pent-up depreciation pressure before the Federal Reserve meets Dec. 15-16.

In Hong Kong’s offshore market, the yuan dropped 0.27 percent to 6.5497 a dollar as of 4:46 p.m. local time, extending a six-day decline to 1.6 percent, according to data compiled by Bloomberg. That took its spread to the onshore spot rate to 906 pips, above an average of 511 pips in the past month. The PBOC has been seen propping up the yuan’s exchange rate in Hong Kong periodically to narrow the difference.

The yuan’s one-month implied volatility, a gauge of expected price swings, surged 68 basis points on Monday to 6.72 percent, according to data compiled by Bloomberg. It earlier rose to 6.76 percent, the highest since August.

“With the wider spread between onshore and offshore yuan, the intervention risk in the offshore market is now higher and will be more likely to happen after the Fed meeting this week,” said DBS’s Ong.

Easing Controls

The PBOC on Friday also released guidelines on free trade zones in the provinces of Guangdong and Fujian as well as Tianjin city, granting companies registered in the area up to $10 million in capital-account convertibility quotas. In the Guangdong zone, individuals can borrow yuan funds from Hong Kong and Macau for property purchases within the area, the central bank said.

The introduction of a multi-currency index helps guide the public view of the yuan’s exchange rate, which will contribute to keeping the currency “basically stable at an adaptive and equilibrium level,” the PBOC said on Friday. That reinforces other recent statements suggesting an increased focus on broader moves rather than just against the dollar, according to a Goldman Sachs Group Inc. note. It forecast that the yuan will weaken to 6.6 a dollar in a year.

Referencing the yuan to a list of currencies doesn’t mean the exchange rate is pegged to that basket, according to an article published on the PBOC website and written by an unidentified CFETS commentator. China’s ample foreign-exchange reserves and trade surplus should keep the yuan reasonably stable at a reasonable level, it said.

“This underscores how China’s authorities are increasingly looking at the currency in a much broader context, moving away from a focus on the dollar, and so too should market participants,” HSBC Holdings Plc analysts included Paul Mackel wrote in a note dated Dec. 12. “But this does not mean China is going to formally target a currency basket like Singapore does. We see the yuan at 6.50 by end-15 and 6.70 end-16, amid greater two-way volatility.”

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Samed Olukoya

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Black Market Rate

EFCC Raids Wuse Zone 4 Market, Clashes with Bureau De Change Operators

Published

16 hours ago

May 8, 2024

Samed Olukoya

Tensions escalated in the bustling Wuse Zone 4 Market as operatives from the Economic and Financial Crimes Commission (EFCC) conducted a raid targeting Bureau De Change (BDC) operators on Tuesday.

The raid, intended to curb illegal currency trading and enforce regulatory compliance, quickly turned confrontational, resulting in clashes between the EFCC agents and currency traders.

Eyewitnesses reported scenes of chaos as the operatives attempted to apprehend BDC operators, who resisted the arrests vehemently.

The situation escalated to the point where gunshots were fired, and vehicles belonging to the EFCC were damaged.

Two currency traders, speaking anonymously, confirmed the events, citing frustration and desperation among the traders as the underlying cause of the resistance.

According to one witness, who requested anonymity for fear of reprisal, the traders’ reaction was fueled by their perception that the EFCC’s arrests were becoming excessively frequent and motivated primarily by a desire to extort money from them.

“Yesterday (Monday), they arrested traders, but they faced resistance today. People are getting tired and desperate,” the witness explained.

Another trader echoed similar sentiments, warning that continued raids by the anti-corruption agency could escalate into violence and potentially lead to fatalities. “If this thing continues like this, that means they would kill people,” the trader cautioned.

The growing frustration among traders stems from their belief that the EFCC’s actions, which often culminate in monetary fines, serve more as revenue-generating measures than effective regulatory enforcement.

The EFCC’s resurgence in raiding activities is part of its broader efforts to stabilize the Nigerian naira and combat illegal currency speculation.

In recent weeks, the commission has intensified its crackdown on suspected currency speculators and fraudulent foreign exchange practices.

However, despite these efforts, the naira has continued to depreciate, reflecting the challenges facing Nigeria’s foreign exchange market.

Traders at the Wuse Zone 4 Market highlighted the market’s volatility, with fluctuations in exchange rates making it increasingly difficult to predict trading outcomes. One trader, identified as Malam Yahu, expressed concern over the market’s instability and the challenges it poses for traders.

“Right now, the market is just fluctuating, and the naira is not stable at all,” he lamented. Yahu highlighted the impact of the EFCC raids on trading activities, noting how traders refrained from transactions to avoid potential losses.

At the official market, data from the FMDQ exchange securities revealed a sharp depreciation of the naira, raising concerns about rapid fluctuations and market volatility.

The intraday high and low of the naira against the dollar further underscored the challenges facing Nigeria’s foreign exchange market.

As the EFCC continues its crackdown on illicit currency trading, the clashes in the Wuse Zone 4 Market serve as a stark reminder of the underlying tensions and frustrations prevalent among currency traders.

The agency faces the daunting task of balancing enforcement actions with addressing the root causes of illegal trading, amidst ongoing challenges in Nigeria’s foreign exchange market.

Forex

Nigerian Companies Settle Dollar Debts as Central Bank Reforms Bolster Forex Liquidity

Published

17 hours ago

May 8, 2024

Samed Olukoya

In a significant development for Nigeria’s corporate landscape, several major companies have begun to settle their long-standing dollar debts following the Central Bank of Nigeria’s (CBN) recent reforms that bolstered dollar supply.

The reforms have provided much-needed relief to businesses grappling with forex scarcity and overdue obligations.

Among the notable firms taking advantage of the improved forex liquidity are MTN Nigeria Communications Plc, BUA Foods Plc, and Cadbury Schweppes Overseas Ltd.’s Nigeria unit.

These companies, some of the largest players in Africa’s most populous nation, have reported that they are now able to access dollars to meet their foreign currency obligations, marking a stark reversal from previous struggles with forex shortages.

MTN Nigeria, the country’s leading mobile operator, disclosed that it utilized the enhanced liquidity in the forex market to significantly reduce its letters of credit obligations by 41.6%, slashing it down to $243.4 million from $416.6 million in December.

Chief Financial Officer Modupe Kadiri emphasized this move as a strategic measure to mitigate losses during an investor conference call last week.

The Central Bank of Nigeria’s reform measures, implemented since the beginning of the year, have been instrumental in driving this positive change. These measures include raising the benchmark interest rate by 600 basis points to attract capital inflows and abandoning the currency’s peg, allowing the market to determine the exchange rate of the naira.

After years of unconventional currency management that deterred investors and exacerbated forex scarcity, these reforms have injected new life into Nigeria’s forex market.

According to Tatonga Rusike, a sub-Saharan Africa economist at Bank of America Corp., portfolio flows have responded positively to the reforms, leading to a substantial increase in average daily forex turnover, which has more than doubled from 2023 lows.

Recent data from Chapel Hill Denham indicates a remarkable surge in dollar liquidity, with a 90% jump to $160.8 million on Tuesday compared to the previous day.

Also, the central bank’s proactive approach, including selling dollars to money traders to enhance distribution to retail users, has further contributed to the improved forex liquidity environment.

The positive impact of increased dollar liquidity is evident across various sectors of the Nigerian economy.

BUA Foods, the country’s largest food and beverage company, reported a 6% reduction in debts during the first quarter of this year, attributed to improved dollar availability.

Similarly, Cadbury Nigeria has been able to fulfill all its dollar requirements from the official market since the beginning of the year, leading to a drop in local-currency cash reserves.

Economists and industry experts view the enhanced forex liquidity as a welcome development that provides companies with a much-needed reprieve to settle debts and navigate the effects of currency devaluation.

Adetilewa Adebajo, economist and chief executive at Lagos-based CFG Advisory, emphasized the importance of sustaining liquidity to support the turnaround desired by companies.

He stressed the need for positive real rates, matching interest rates with inflation, and fiscal responsibility to ensure continued economic stability and growth.

As Nigerian companies take advantage of improved forex liquidity to address long-standing financial challenges, the success of the central bank’s reforms will be closely monitored, with hopes for sustained liquidity and economic recovery in the months ahead.

Naira

Black Market Dollar to Naira Exchange Rate Today 8th May 2024

The black market, also known as the parallel market or Aboki fx, US dollar to Nigerian Naira exchange rate as of May 8th, 2024 stood at 1 USD to ₦1,440.

Published

18 hours ago

May 8, 2024

Samed Olukoya

The black market, also known as the parallel market or Aboki fx, US dollar to Nigerian Naira exchange rate as of May 8th, 2024 stood at 1 USD to ₦1,440.

Recent data from Bureau De Change (BDC) reveals that buyers in the Lagos Parallel Market purchased a dollar for ₦1,430 and sold it at ₦1,420 on Tuesday, May 7th, 2024.

This indicates a decline in the Naira exchange rate compared to the current rate.

The black market rate plays a crucial role for investors and participants, offering a real-time reflection of currency dynamics outside official or regulated exchange channels.

Monitoring these rates provides insights into the immediate value of the Naira against the dollar, guiding decision-making processes for individuals and businesses alike.

It’s important to note that while the black market offers valuable insights, the Central Bank of Nigeria (CBN) does not officially recognize its existence.

The CBN advises individuals engaging in forex transactions to utilize official banking channels, emphasizing the importance of compliance with regulatory frameworks.

How much is dollar to naira today in the black market

For those navigating the currency exchange landscape, here are the latest figures for the black market exchange rate:

Buying Rate: ₦1,440
Selling Rate: ₦1,430

As economic conditions continue to evolve, staying informed about currency exchange rates empowers individuals to make informed financial decisions. While the black market provides immediate insights, adherence to regulatory guidelines ensures stability and transparency in forex transactions.