The Naira’s Performance and Outlook: A Detailed Analysis
The Nigerian Naira demonstrated resilience in the foreign exchange market, closing at 1,531.57/$ on Friday, marking a 0.23% appreciation week-on-week and a 0.13% improvement month-on-month. This positive trajectory reversed the slight weakening observed in July, when the Naira closed at 1,533.55/$, a 0.25% decline compared to June’s closing rate of 1,529.71/$. The Naira’s strengthening was largely attributed to improved market liquidity and sustained dollar inflows, bolstering confidence in the currency. This positive momentum was further reinforced by the consistent rise in Nigeria’s external reserves, which reached $41.27 billion by the end of the week, up from $41.00 billion earlier in August.
Analysts at Cowry Assets Management highlighted the Naira’s improved performance, attributing it to enhanced market liquidity and consistent dollar inflows. They also noted a parallel market appreciation of 0.37% week-on-week, with the Naira settling at an average of 1,538.33/$. This parallel market strengthening reflects renewed confidence among traders and a moderation of speculative pressures within the informal segment. Looking ahead, Cowry Assets Management anticipates the Naira to trade relatively stable at the official window, supported by Central Bank of Nigeria (CBN) interventions and moderate foreign exchange inflows. However, they acknowledge that rising demand and a stronger U.S. dollar could potentially limit further gains. In the parallel market, modest appreciations are expected, unless speculative pressures or liquidity tightening emerge.
AIICO Capital’s analysis similarly emphasized the influence of liquidity flows and CBN interventions on the Naira’s performance. They observed initial high dollar demand pushing rates to 1540/$, prompting the CBN to intervene by selling approximately $70 million across trading sessions to stabilize the market. Subsequently, improved supply and consistent CBN interventions anchored the market within the 1525-1538/$ range, effectively containing volatility. By the end of the week, the Naira strengthened slightly due to higher dollar supply and moderated demand, closing at 1,531.57/$, a decrease of 22.6 basis points week-on-week. AIICO Capital, aligned with other analysts, projects that the Naira will likely maintain its current trading range in the coming week.
PwC’s Economic Outlook further supports this projection, forecasting broad stability for the Naira throughout 2025. This stability is predicated on the ongoing CBN reforms and anticipated improvements in portfolio inflows. The combined analyses suggest a positive, albeit cautiously optimistic, outlook for the Naira in the near term.
The sustained dollar inflows, coupled with the CBN’s active interventions, are key factors contributing to the Naira’s stability. The CBN’s proactive approach in managing exchange rate volatility has been crucial in preventing sharp fluctuations and maintaining market confidence. While external factors such as a strengthening U.S. dollar could pose challenges, the overall outlook remains positive, with expectations of continued stability. The ongoing CBN reforms and expected improvements in portfolio inflows are further strengthening factors supporting the Naira’s resilience.
In conclusion, the Naira’s recent performance and the expert forecasts point towards continued stability in the near term. The combined effects of improved market liquidity, sustained dollar inflows, and proactive CBN interventions have created a supportive environment for the Naira. While potential headwinds exist, the overall outlook remains positive, with expectations of sustained stability throughout 2025, underpinned by ongoing reforms and improving portfolio inflows. The convergence of these factors paints a picture of a resilient Naira, capable of weathering potential market fluctuations and maintaining its current trading range.
