Detty December: Dollar Demand Rises as Naira Rebounds in Official Market
- The Nigerian currency is being squeezed right now due to the spike in dollar demand in the foreign exchange markets
- Experts have disclosed that the current Christmas season is putting the naira to the test as December spending gains momentum
- However, despite the high dollar demand, the naira has remained relatively resilient in the forex market
Pascal Oparada is a journalist with Legit.ng, covering technology, energy, stocks, investment, and the economy for over a decade.
Dollar demand in Nigeria’s foreign exchange market has picked up sharply as year-end “Detty December” spending gathers momentum, creating mild pressure on the naira despite sustained support from the Central Bank of Nigeria and improving external buffers.
The festive season traditionally brings increased spending on travel, imports and entertainment, all of which raise demand for foreign currency.
Source: Getty Images
Last week, the naira weakened marginally by 0.1 per cent week-on-week to N1,456 to the dollar at the official window, as demand pressures outweighed a $250 million foreign exchange injection by the apex bank and fresh inflows from offshore investors.
Market participants say the movement reflects seasonal patterns rather than a fundamental shift in currency dynamics.
External reserves strengthen investor confidence
CBN data show Nigeria’s gross external reserves rose for the 25th consecutive week, climbing by $396.84 million to $45.44 billion as of December 11.
The steady buildup has reinforced investor confidence and strengthened the country’s external position at a time of heightened seasonal demand.
Analysts note that rising reserves have played a key role in cushioning the naira against sharper volatility, even as dollar demand increases.
Improved reserve levels also give the central bank more room to intervene when necessary.
“Despite the high volume of demands, we expect the naira to maintain strong resilience in the markets,” Janet Ogochukwu, senior banker and economist, told Legit.ng.
According to her, the rise in external reserves is enough to drive resilience and ensure the naira’s stability.
“As you can see, the CBN has also stepped up interventions at this period to ensure the naira does not trail off,” she said.
Forward market signals mixed expectations
In the forwards market, the naira recorded depreciation across short- to medium-term contracts.
The one-month, three-month and six-month contracts weakened to N1,485.97, N1,536.28 and N1,599.70 per dollar, respectively.
In contrast, the one-year contract appreciated to N1,726.89 per dollar, suggesting improved confidence in the currency over the longer term.
Market analysts attribute near-term weakness to holiday-related imports, international travel and year-end corporate settlements, all common features of the festive season.
Remittances and tourism offer relief
According to the Financial Markets Dealers Association research unit, December’s heightened FX demand could be partially offset by stronger foreign currency inflows later in the month.
A report by the Daily Sun disclosed that increased diaspora remittances, inbound travel and tourism spending are expected to improve FX liquidity and provide modest support for the naira.
These inflows typically peak toward the latter part of December, helping to narrow demand-supply gaps in the market.
Global and domestic factors at play
The naira posted mixed performance in November, depreciating by 1.73 percent month-on-month at the official window.
Analysts link the reversal to rising seasonal demand and external pressures, including a stronger US dollar driven by renewed trade tensions and tariff expectations.
Domestically, policy support remains firm. The CBN has held the Monetary Policy Rate at 27 per cent to anchor inflation expectations, while the Nigerian National Petroleum Company Limited continues naira-denominated crude oil sales to local refineries to reduce dollar demand.
Stability holds despite risks
In the parallel market, the naira weakened slightly to N1,476 per dollar in late November, though the gap between official and parallel rates remains relatively narrow.
Analysts say steady remittances and moderated import demand have helped maintain convergence.
Over the past year, the naira has strengthened significantly at the official window, supported by reforms such as the Electronic Foreign Exchange Management System, which improved transparency and price discovery.
Source: Getty Images
While risks remain from oil price volatility and structural weaknesses, analysts at Cordros Research expect the naira to remain broadly stable in the near to medium term, underpinned by strong FX liquidity and rising reserves.
CBN moves to crash dollar with $150m sale
Legit.ng earlier reported that the CBN has sold $150 million to authorised dealer banks in a fresh attempt to ease pressure on the naira and improve dollar liquidity in the official market.
Updated market data showed that the intervention came as demand for foreign currency continued to outstrip supply, leading to another round of weakness for the local currency.
FX inflows remained sluggish despite recent improvements in oil receipts. This imbalance allowed the dollar to maintain an upper hand, pushing the naira beyond levels analysts expected at this stage of the year.
Source: Legit.ng
