Naira Holds Steady as Strong Dollar Supply Supports Foreign Exchange Market

By Benson Daniel

The naira ended the trading week largely stable across Nigeria’s foreign exchange market, supported by improved dollar liquidity and stronger external buffers that have continued to ease pressure on the local currency.

Data from the Central Bank of Nigeria showed that the naira appreciated slightly by N2.53 against the United States dollar at the Nigerian Foreign Exchange Market, closing at N1,365.69 on Friday compared with N1,368.22 recorded a week earlier.

The marginal weekly gain highlights the relative stability that has characterised the foreign exchange market in recent weeks as dollar supply improves and Nigeria’s external reserves strengthen.

On a day to day basis, however, the naira weakened marginally by 81 kobo from N1,364.88 recorded on Thursday. Over the five trading days, the currency also recorded a slight decline of 86 kobo from the N1,364.83 opening rate on Monday.

The performance reflects a market that has remained relatively balanced despite continuing demand for foreign exchange from importers, businesses and other users of the dollar.

In the parallel market, the naira also recorded movements during the week. The currency closed at N1,424 per dollar on Friday, compared with N1,415 at the end of the previous week.

The development resulted in a wider gap between the official and parallel market rates, although the difference remained relatively contained compared with the significant disparities witnessed during periods of severe foreign exchange shortages.

Strong dollar liquidity has become an important factor supporting stability in the official market. Increased foreign exchange availability gives authorised dealers greater capacity to meet legitimate demand and reduces pressure on the naira.

Nigeria’s improving external position has also provided additional support for the currency. Higher external buffers increase the country’s ability to meet foreign exchange obligations and can strengthen confidence in the stability of the domestic currency.

The relative stability of the naira represents a significant change from the sharp fluctuations experienced in previous years, when limited dollar supply and strong demand contributed to substantial depreciation.

The Central Bank has continued to implement measures aimed at improving transparency and efficiency in the foreign exchange market, while encouraging transactions to take place through official channels.

For businesses, greater exchange rate stability could improve planning and reduce uncertainty around the cost of imported raw materials, equipment and other foreign sourced inputs.

Import dependent companies have been particularly affected by exchange rate volatility in recent years, with sudden movements in the naira increasing operating costs and complicating pricing decisions.

A more stable currency could therefore provide some relief to businesses if the trend is sustained. However, companies and investors are likely to remain cautious because the exchange rate remains sensitive to changes in foreign exchange supply, oil earnings, capital inflows and broader global financial conditions.

The naira’s performance is also important for inflation. A more stable exchange rate can help reduce imported inflation by limiting increases in the naira cost of imported goods and production inputs.

However, the impact on consumer prices may take time to become fully visible because businesses often adjust prices based on existing inventories and expectations about future exchange rate movements.

The latest performance therefore provides another indication that conditions in Nigeria’s foreign exchange market are improving, although maintaining stability will depend on sustained dollar liquidity and continued growth in the country’s external buffers.

Market participants will continue to monitor foreign exchange inflows, crude oil earnings, external reserves and monetary policy decisions as they assess the naira’s outlook.

For now, the currency enters the new trading week on a relatively stable footing, with stronger dollar liquidity helping to limit volatility and support confidence in the foreign exchange market.