The Naira started Friday’s session at N1,580/$ per dollar in the parallel market, down from N1,590/$ on Thursday, despite the bullish dollar index in the global financial market.
Recent fundamentals in the Nigerian socio-economic space show that the naira is vulnerable.
The naira is a crude oil derivative based on Nigeria’s high reliance on fossil fuels for foreign exchange earnings. Concerns about weak demand, growing trade tensions between the U.S. and important trading partners, and OPEC+ production quota increases are negatively affecting the Nigerian currency.
Nigerian Bureau de Change operators have accused commercial banks of not selling them foreign currency.
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BDCs are struggling with a shortage of foreign exchange, according to Aminu Gwadabe, president of the Association of Bureau de Change Operators of Nigeria (ABCON), who voiced the concern.
Nigeria’s reliance on FPI inflows is under distress as the appetite for Nigerian one-year treasury bills has been on a steady decline despite CBN efforts to raise yields.
- Yields on one-year T-bills increased for the second consecutive time at this surprise auction, rising from 22.52 per cent to 24.9 per cent, as the market continued to be impacted by liquidity constraints.
- The demand for one-year T-bills fell sharply to N861 billion on Wednesday, compared to N1.5 trillion at the first auction of 2024, its lowest level this year.
- Militants have threatened to attack the state’s oil infrastructure amid an ongoing political dispute between the state and the federal government over the distribution of federal funds to Rivers.
- The Trans-Niger Pipeline, one of the primary routes for transporting crude pumped in the Niger Delta to the Bonny export terminal, was damaged by an explosion earlier this week.
The oil flow had to be rerouted immediately after the explosion caused a huge fire at a portion of the pipeline.
Nigeria’s oil output peaked in 2024 at 1.7 million barrels per day. The Federal Government stated its goal to increase that significantly by about 1 million barrels per day in the next two years.
However, oil theft and pipeline vandalism make such optimism almost impossible to achieve, casting a bleak outlook on the naira.
However, the Nigerian naira’s relative stability in the first quarter helped the recent decline in Nigeria’s inflation rate.
NBS data revealed the country’s inflation rate moderated to 23.18 per cent in February from 24.48 per cent in January, marking the first slowdown in 2025. Lower energy prices, a stable naira, and the rebasing of Nigeria’s inflation index all contributed to the decline.
U.S. Dollar Strength Shows Recovery
The dollar appreciated as traders placed bets that there would not be any short-term interest rate cuts, but concerns about higher tariffs and slower growth tempered risk appetite.
- The dollar bounced back from its post-Fed losses as markets became more certain that the Federal Reserve would keep rates higher for longer this year, even though the central bank stuck to its 2025 rate-cut projections of 50 basis points. The dollar index and dollar index futures increased 20 basis points, continuing an overnight recovery in London’s trading session on Friday.
- Market action confirmed that the U.S. Dollar Index is still showing indications of recovery, but there is still little upward momentum. Although bearish pressure is lessening, the Moving Average Convergence Divergence (MACD) histogram is still in negative territory, while the Relative Strength Index (RSI) is progressively rising.
- The Federal Reserve’s most recent policy stance, which reaffirmed expectations for two rate cuts in 2025, has kept FX traders’ attention. The index is settled comfortably in the 103–104 range amid solid economic data in the world’s largest economy. Markets have priced in a lower likelihood of short-term rate declines as the U.S. Federal Reserve kept interest rates unchanged this week.
- Data on U.S. unemployment claims also demonstrated labor market resilience, which the Federal Reserve considered when deciding whether to lower interest rates. For the most part, currency traders ignored U.S. calls from President Donald Trump for the Fed to lower interest rates.
U.S. President Donald Trump stated on Thursday that a rate cut by the Fed “would be great.”
However, the central bank indicated no such intention, citing increased economic uncertainty, Trump’s tariffs, and the direction of inflation. Additionally, the Fed lowered its growth outlook and increased its inflation forecast for 2025.
Geopolitical uncertainty remains high, with tensions escalating in Turkey and Gaza, and no obvious route to a ceasefire in Ukraine. Investors are turning to Treasuries for safety due to economic and geopolitical uncertainty, which is causing U.S. bond yields to dip.
The strong demand for U.S. bonds is supported by the belief that yields will decline once the Fed begins to cut rates. The American equity markets trade cautiously following the Fed’s policy decision, while European markets exhibit mixed sentiment.
