Naira slips 1.79% to N1,394/$ at parallel market as FX demand rises

The naira depreciated by 1.79 per cent to an average of N1,394 to the dollar at the parallel market last week, from N1,369 the previous week. Increased demand for foreign exchange, seasonal payment obligations and a stronger U.S. dollar weighed on the local currency.

Pressure also showed at the official foreign exchange window. The naira weakened by 0.04 per cent to close at N1,346.79 to the dollar, compared with N1,346.26 the previous week.

Oil, reserves and external pressure

The depreciation came amid a 10.45 per cent decline in Nigeria’s Bonny Light crude oil price to $106.90 per barrel from $119.37. The country’s gross external reserves fell marginally by 0.16 per cent to $55.13 billion as of Wednesday, down from $55.22 billion the previous week.

The foreign exchange market experienced renewed pressure during the week as the US Dollar Index strengthened amid changing global market conditions. Investors also assessed concerns that a slowdown in artificial intelligence-related investments could weaken the outlook for the US economy.

In the international oil market, crude prices fell sharply. Brent crude dropped towards $90 per barrel at one point on Friday, marking its steepest weekly loss since mid-April. The decline followed renewed hopes of a diplomatic breakthrough in the Middle East, prompting traders to reduce the geopolitical risk premium in oil prices.

Analysts see stability, but risks remain

Analysts at Cowry Asset Management Limited said the naira was expected to remain relatively stable in the near term. They cited continued foreign exchange interventions by the Central Bank of Nigeria and measures aimed at improving liquidity at the official foreign exchange window.

The CBN’s efforts to sustain liquidity and ensure foreign exchange availability would help moderate volatility and support orderly trading in the market, the analysts said.

They noted, however, that the local currency could continue to face pressure from persistent demand for foreign exchange, particularly as businesses and individuals meet seasonal payment obligations and other foreign currency commitments.

The analysts added that movements in the U.S. dollar in international markets would also influence the naira’s performance. A stronger dollar could increase demand for the greenback and put additional pressure on emerging market currencies.

They further identified crude oil price movements and the pace of foreign exchange inflows as critical factors that would determine the direction of the local currency. Sustained crude oil earnings and improved foreign exchange inflows would strengthen the supply position, while a prolonged decline in oil prices could moderate inflows and constrain the CBN’s capacity to support the market.

What it means for the naira

The near-term outlook rests on CBN liquidity support and FX inflows. Seasonal demand and a stronger dollar remain the main pressure points for the naira.