Naira Suffers Decline in Forex Market as Exchange Gap Widens
- The naira fell by 0.57% as US dollar demand surged against limited supply in the Nigerian Foreign Exchange Market
- Nigeria's external reserves increased modestly to $46.81 billion despite currency pressures
- Oil prices dropped over 3% amid US-Iran talks, affecting Nigeria's export earnings
Pascal Oparada is a journalist with Legit.ng, covering technology, energy, stocks, investment, and the economy for over a decade.
The naira weakened on Thursday, snapping a three-day appreciation streak in Nigeria’s foreign exchange market as renewed demand for the US dollar outweighed available supply.
The local currency declined by 0.57 per cent, or ₦7.77, against the greenback at the Nigerian Foreign Exchange Market (NFEM), reflecting increased pressure from foreign payment obligations and investor activity.
Source: Getty Images
Market data showed that the naira traded within a narrow intraday band of ₦1,361.80 to ₦1,370.00 per dollar before closing at ₦1,366.06.
The pullback follows recent gains that had briefly eased concerns around currency stability and narrowed the gap between official and parallel market rates.
Dollar demand, investor profit-taking drive weakness
Analysts attribute the latest depreciation to heightened dollar demand at the official window, coupled with profit-taking by some foreign portfolio investors.
According to AIICO Capital Limited, demand built up rapidly against limited dollar supply, prompting pressure on the spot rate.
Foreign portfolio flows have been particularly sensitive to short-term movements in the naira, with investors locking in gains after the recent appreciation.
This dynamic, traders say, has contributed to the widening exchange rate gap across official and alternative markets, reviving arbitrage concerns.
External reserves edge higher
Despite the naira’s retreat, Nigeria’s gross external reserves recorded a modest increase.
Data from the Central Bank of Nigeria showed reserves rose by $106.24 million day-on-day to $46.81 billion.
The uptick provides some buffer for the monetary authorities as they continue efforts to stabilise the currency and meet foreign exchange obligations.
However, analysts note that reserve accretion remains vulnerable to developments in global commodity markets, particularly crude oil, Nigeria’s main foreign exchange earner.
Oil prices slip on Iran talks
Global oil prices came under pressure on Thursday, falling by more than 3 per cent amid easing geopolitical tensions.
The decline followed reports that the United States and Iran agreed to hold talks in Oman, raising expectations of fewer disruptions to Iranian crude supply.
Brent crude dropped 2.42 per cent, or $1.68, to trade around $67.78 per barrel, while US West Texas Intermediate fell 2.39 per cent to approximately $63.58 per barrel. Softer oil prices could weigh on Nigeria’s export earnings if the trend persists.
Gold falls as dollar strengthens
Gold prices also retreated as a firmer US dollar reduced the appeal of the non-yielding asset.
Profit-taking set in after recent rallies, pushing spot gold down by 185 basis points to $4,871.63 per ounce. US gold futures fell by 121 basis points to about $4,890.95 per ounce.
Market outlook
Analysts expect oil prices to remain under pressure in the near term as markets closely monitor the outcome of US–Iran discussions for signals of reduced geopolitical risk.
Gold may continue to face headwinds from sustained dollar strength and weaker safe-haven demand.
Source: Getty Images
For Nigeria, the combination of fluctuating oil prices, volatile portfolio flows, and rising dollar demand suggests continued pressure on the naira, even as external reserves offer short-term support.
CBN updates Customs duty exchange rate
Legit.ng earlier reported that the CBN released a revised exchange rate for the clearance of imported goods at Nigeria’s air and seaports, following the sustained appreciation of the naira against the US dollar.
The update reflected recent gains by the local currency at the official foreign exchange market and is expected to ease cost pressures for importers.
The naira had enjoyed a bullish run in the closing weeks of January, ending the month at N1,386 per dollar, according to data from the Nigerian Foreign Exchange Market (NFEM).
Proofreading by Kola Muhammed, copy editor at Legit.ng.
Source: Legit.ng
