Trade on auction market dissipates
In a clearest sign of wider dollarisation of the economy, the levels of auction market trading grossly subsided to the lowest levels since June 2020. This week, the auction market exchanged US$14,5 million amidst a slowdown in the number of bids.
Year to date, weekly average trades are at US$27 million, while that of 2021 was at US$40 million. This means that the levels of trades have declined by 64% since last year. Typically, this movement if supply driven, that is to say if it is a consequence of supply deficit, would typically drive the price of the USD further up.
now this is not the typical interplay on the market. Outside the technical implication of a strangled auction market, the real movement of the dollar is seen through the lenses of the parallel market.
If the auction market supply was grossly low, it would result in a worsening parallel exchange rate. However, the parallel exchange rate has been stable for at least four weeks, over which the levels of trades on the auction has grossly dissipated. This shows that the decline in trades in not a supply issue but rather a demand issue.