The Nigerian currency showed minimal changes in the Nigerian FX market despite a weaker dollar in the global market.
The naira bounced and settled at N1,565/$ in the unofficial market, compared to Monday’s settlement rate of N1,570 per dollar.
CBN data showed that the local currency depreciated in the official market on Tuesday, settling at N1,537 per dollar, down from Monday’s settlement price of N1,528/$ against the dollar.
Market actions highlighted the naira’s fragility, despite several foreign exchange market reforms aimed at increasing transparency and attracting foreign investors.
Mixed Fundamentals Weigh on the Naira
Limited foreign exchange inflows, driven by weak oil production and uneven fiscal reforms aimed at generating revenue, have put tremendous pressure on the naira despite monetary interventions.
- The country’s average daily crude oil production again fell short of the Organization of the Petroleum Exporting Countries’ (OPEC) allotted quota.
- Nigerian Upstream Petroleum Regulatory Commission data showed Nigeria’s crude output dipped from 1.54 million barrels per day in January to about 1.47 million bpd in February.
The West African nation’s OPEC quota is pegged at 1.5 million barrels daily. The decline in February shows that Africa’s most populous country lost roughly 2.1 million liters of crude oil in a month, or 70,000 barrels per day on average.
- The naira is a derivative of Nigerian crude because the country is highly dependent on crude exports for foreign exchange income.
- Underinvestment in the country’s energy infrastructure, vandalism, and crude oil theft have prevented the nation from fulfilling its production targets.
However, Chatham House, a think tank institution, recently stated that the naira’s depreciation has helped the economy. They noted it improved Nigeria’s balance of payments, which is now in surplus, and brought capital back into the nation. Consequently, the CBN boosted its foreign exchange reserves to over $40 billion, guaranteeing a level of reserves essential for financial stability.
Nigeria’s external debt may still be higher, but the CBN’s gross reserves are currently “at a prudent level,” according to the institution, which praised the CBN’s progress. Additionally, the devaluation of the naira has significantly bolstered the Nigerian budget.
“Nigeria’s budget was more severely impacted in recent years by a misaligned exchange rate, according to the World Bank, than by the expense of the government’s fuel subsidies,” the think tank stated.
U.S. Dollar at Five-Month Low Amid U.S. Tariffs
The dollar index, which compares the currency’s value to a basket of six major peers, increased marginally to 103.5 during the London trading session after plunging 0.46 percent on Tuesday, reaching 103.2 index points for the first time since October 16.
- Small-business confidence fell for the third consecutive month in February in the world’s largest economy, continuing a trend of weaker economic data. Since Trump did not rule out the possibility that his trade policies would cause a recession, investors have been on edge.
- President Donald Trump’s erratic trade policies have raised concerns about the U.S. economy, and the dollar struggled on Wednesday to recover from a five-month low versus key rivals.
- The euro stayed close to its five-month peak, with growing hope for a settlement to the Ukrainian conflict.
The Canadian dollar remained stable after a tumultuous Tuesday session in which Trump promised to raise steel and aluminum tariffs to 50% but later withdrew his commitment. Traders anticipate another quarter-point decline in interest rates when the Bank of Canada makes its announcement later on Wednesday.
The American equity market will likely continue to suffer due to tariff concerns and Trump’s recession talk. Unfortunately, the naira hasn’t benefited from this situation.
