Naira outlook strengthens as reserves top $51bn despite firmer US dollar

By Our Reporter

Nigeria’s foreign exchange outlook has improved as external reserves climbed above $51 billion, providing stronger support for the naira even as the US dollar continues to strengthen in global currency markets.

Latest trading data from the Nigerian Foreign Exchange Market (NFEM) showed the naira consolidating within the N1,370 to N1,385 per dollar range, reflecting improved market stability following recent monetary and foreign exchange reforms.

Market analysts attribute the currency’s resilience to stronger crude oil export earnings, sustained foreign portfolio investment inflows and the Central Bank of Nigeria’s (CBN) tighter monetary policy, which has kept domestic fixed-income yields attractive to offshore investors.

Treasury bill yields of between 16 and 19 per cent, alongside the CBN’s benchmark monetary policy rate of 26.5 per cent, have continued to support carry trade inflows and strengthen demand for naira-denominated assets.

Analysts also point to greater transparency in the foreign exchange market and tighter regulation of Bureau De Change operators, which have helped reduce arbitrage opportunities and improve confidence in the official market. The clearance of much of Nigeria’s outstanding foreign exchange obligations has further reinforced investor sentiment.

Despite the improved outlook, analysts caution that seasonal demand for foreign exchange by manufacturers and importers ahead of the year-end festive period could temporarily increase pressure on the naira.

Under the baseline scenario, the currency is expected to remain broadly stable within the N1,320 to N1,420 per dollar range over the medium term, supported by stronger external reserves and the CBN’s capacity to intervene in the foreign exchange market when necessary.

Further gains in external reserves, combined with increased non-oil export earnings and sustained capital inflows, could provide additional support for the naira over the longer term.

Globally, the US dollar has remained firm against major currencies amid heightened geopolitical uncertainty and expectations that US interest rates could remain elevated for longer. A stronger dollar typically exerts pressure on emerging market currencies by encouraging investors to shift capital towards dollar-denominated assets.

For Nigeria, however, analysts say stronger foreign exchange buffers, improved market liquidity and continued policy reforms could help cushion the naira against external shocks, although global financial conditions and oil price movements will remain key factors shaping the currency’s direction.