The naira strengthened further against the US dollar last week, trading within the N1,302–N1,315 range at the official foreign exchange market as rising dollar liquidity and stronger external reserves continued to support the currency.
The movement brings the naira closer to the psychologically important N1,300/$ threshold, with market conditions suggesting a gradual improvement in the balance between dollar demand and supply.
At the centre of the development is the Central Bank of Nigeria’s (CBN) stronger foreign exchange position. The country’s gross external reserves have risen to about $54 billion, their highest level in roughly 18 years, giving the apex bank greater capacity to respond to pressure in the currency market.
The stronger reserve position has coincided with improved liquidity in the foreign exchange market and reduced volatility in the naira.
Market analysts say repeated attempts by the currency to move below N1,300 per dollar could signal easing demand for foreign exchange and a better alignment between dollar demand and supply.
The CBN’s relatively tight monetary policy has also played a role. High interest rates have been maintained partly to contain inflationary pressures, discourage excessive demand for foreign currency and make naira-denominated fixed-income assets more attractive to foreign investors.
Improved oil earnings and non-oil foreign exchange inflows have also supported the accumulation of reserves, while rising remittance inflows have provided an additional source of dollars.
The CBN’s reserves position is particularly significant because it gives the apex bank more room to intervene, when necessary, without putting immediate pressure on its external buffers.
Dollar movements remain a factor
Despite the naira’s recent gains, developments in global currency markets could influence its direction.
The US dollar retained some strength last week following stronger-than-expected US labour market data, while expectations surrounding the Federal Reserve’s interest-rate decisions continued to shape investor sentiment.
A sustained period of dollar weakness could provide additional room for emerging-market currencies, including the naira, to appreciate.
For Nigeria, however, the sustainability of the currency gains will depend largely on the continued strength of foreign exchange inflows, particularly from oil exports, remittances and investment.
The naira’s ability to establish N1,300/$ as a support level could also become an important indicator of whether the recent appreciation represents a temporary market movement or a more durable shift in currency fundamentals.
For now, the combination of stronger reserves, improved FX liquidity and tighter monetary conditions has given the naira greater stability than it experienced during the severe volatility of the past two years.
