Naira Defies 30% Drop in FX Inflows, Gains 1% in April

LAGOS. The naira showed unexpected strength in April, appreciating slightly even as foreign exchange inflows into Nigeria’s FX market slumped by 30 percent month on month to $2.9 billion. Data from FMDQ Exchange showed that weaker participation from foreign investors, driven by rising geopolitical tensions in the Middle East, particularly the standoff between the United States and Iran, caused the drop.

Naira Gains Despite Supply Shock

Despite the sharp decline in FX supply, the naira closed April at N1,374.00 per dollar at the official market, gaining about one percent. The currency’s resilience surprised many market watchers. Typically, a fall in foreign exchange inflows puts downward pressure on the naira. But analysts say softer demand for dollars, especially from importers, helped stabilise the currency.

Global trade disruptions linked to the Middle East tensions slowed import activity. Many importers delayed procurement orders and reduced transaction volumes, cutting their need for dollar purchases. This eased demand-side pressures that usually drive exchange rate volatility.

Average Exchange Rate Improves

The naira also showed improved stability when measured by its average exchange rate. The average rate strengthened to N1,361.51 per dollar in April from N1,381.18 per dollar in March. This indicates reduced volatility in the FX market. Analysts say this reflects better market sentiment and weaker demand for foreign currency, which offset the impact of declining inflows.

Parallel Market Spread Narrows

In the parallel market, the naira strengthened by about two percent month on month to close at N1,398.15 per dollar. The improvement narrowed the spread between the official and unofficial markets. Analysts say this signals improved sentiment and declining speculative activity. A narrower gap reduces opportunities for arbitrage and speculative trading, contributing to a more orderly FX market.

Geopolitical Tensions Dampen Import Demand

The standoff between the United States and Iran has heightened uncertainty across global commodity and shipping markets. This affects oil supply routes, freight costs, and insurance premiums for international trade. For import-dependent Nigeria, these disruptions have led to delayed shipments, higher import costs, and cautious procurement strategies. Many importers are holding back orders while waiting for clarity on global trade conditions.

Near Term Outlook

Analysts believe the moderation in import demand could continue to support relative stability for the naira in the near term. With businesses delaying procurement, dollar demand is expected to remain subdued. This could help offset supply-side volatility from weaker foreign investor inflows. However, analysts caution that prolonged declines in FX inflows could eventually pressure the market if supply shortages become more pronounced.

For now, the naira’s performance in April highlights the growing influence of demand-side dynamics in shaping Nigeria’s FX market. While declining inflows might ordinarily weaken the currency, the simultaneous slowdown in import demand helped restore balance. Market participants will continue to monitor global geopolitical developments, foreign investor flows, and domestic trade activity for signals on the currency’s trajectory.