Exchange rate gap narrows to N20 as naira strengthens across markets

The gap between Nigeria's official and parallel foreign exchange markets narrowed to ₦20 per dollar last week as the naira gained ground against the US dollar. Improved foreign exchange liquidity, stronger external reserves and sustained inflows into the official market helped the local currency post gains across both trading windows.

Naira appreciates in official and parallel markets

At the official Nigerian Foreign Exchange Market (NFEM), the naira appreciated to ₦1,370 per dollar, improving from ₦1,380 recorded the previous week. The parallel market also posted gains, with the dollar exchanging at ₦1,390, representing a ₦15 week-on-week appreciation for the naira as demand for foreign currency eased.

The latest movement reduced the exchange rate gap between the two markets to ₦20 per dollar, down from ₦25 a week earlier. Analysts say this reinforces signs that the country's foreign exchange reforms are gradually improving price convergence.

Increased inflows and CBN reserves boost stability

Analysts attribute the naira's performance to stronger foreign exchange inflows into the official market, supported by increased participation from foreign portfolio investors, exporters, non-bank corporates and other market players. The improved supply of dollars has reduced pressure on the official market, while easing demand in the informal market has also contributed to the appreciation of the local currency.

The continued narrowing of the spread between the official and parallel markets is viewed as a positive development, as it reduces opportunities for exchange rate arbitrage and enhances confidence among investors and businesses.

Latest data released by the Central Bank of Nigeria (CBN) showed that the country's gross external reserves climbed to $51.46 billion at the end of the week. The increase reflects sustained foreign exchange inflows from multiple sources and comes amid expectations that reserves will continue to rise as the apex bank scales back its interventions in the foreign exchange market. Higher reserves strengthen the CBN's ability to support market stability and reassure investors about Nigeria's external position.

Commodity markets mixed as oil prices weaken

Meanwhile, developments in the international commodities market remained mixed. Crude oil prices weakened as negotiations between the United States and Iran continued, raising expectations of additional global supply. Brent crude settled around $71 per barrel, while West Texas Intermediate (WTI) closed near $67 per barrel.

In the metals market, gold, silver and platinum advanced after weaker-than-expected US labour data increased expectations of interest rate cuts by the US Federal Reserve. Tin and zinc also gained on resilient industrial demand, while aluminium and lead slipped on profit-taking and improved supply conditions.

With foreign exchange inflows improving, reserves climbing and the gap between the official and parallel markets narrowing, analysts believe the naira could maintain its recent stability if current market conditions are sustained.