The Nigerian naira appreciated against the U.S dollar by about 1.2% over the past week, moving from N1,519/$ to N1,497/$ as the Nigerian Apex Bank will meet to decide on the country’s headline interest rate.
The largest daily gain occurred on September 19, with a 0.66% drop in the USD/NGN exchange rate.
The Nigerian central bank’s Monetary Policy Committee (MPC) began a two-day meeting on Monday, September 22, and is scheduled to announce its decision on September 23.
Markets are anticipating that Nigeria’s central bank will lower interest rates on Wednesday, citing a stronger naira and lower inflation as potential reasons for relaxing monetary policy.
Headline inflation has declined for the fifth consecutive month to 20.1% year-over-year in August, influenced by naira stability and increased foreign exchange reserves.
Currently, the USD/NGN pair is testing key resistance levels at N1,519/$–N1,524/$, while support levels are being tested at N1,476/$–N1,485/$, which were observed in January and February 2025.
The naira has also strengthened in the black market, trading between N1,515 and N1,517/$ bandwidth. Several factors are supporting the naira’s rise, including improved supply and exchange rate reserves. An increase in external reserves has resulted from higher oil export, production, and natural gas revenue, while oil theft in Nigeria is near a decade low
This turnaround can also be attributed to the reforms implemented by the Central Bank of Nigeria (CBN) and a decrease in speculative trading.
Market projections suggest that the MPC may reduce its benchmark rate from 27 to 25 basis points, and a narrower corridor around the policy rate may be employed to improve control over interbank liquidity.
The naira’s strength has been bolstered by expectations of a potential rate cut by the Federal Reserve and concerns regarding tariffs, which have contributed to a 10% drop in the US Dollar Index (DXY) so far this year.
Emerging market currencies tend to experience less pressure when the USD declines, benefiting the naira indirectly.
Additionally, markets have stabilized due to the CBN’s foreign exchange unification, stricter monetary policies, and reduced speculation driven by cryptocurrencies. Trade between China and Nigeria has also seen a significant boost, as Chinese traders increasingly accept naira payments through a $2 billion swap deal.
This arrangement reduces demand for USD in the $22 billion annual bilateral trade, primarily consisting of imports from China, potentially alleviating annual foreign exchange pressure by $20 billion. Moreover, a decline in import demand has been observed due to export promotion initiatives and changes in consumer behavior, which include a reduction in luxury imports.
U.S dollar index begins the week green in the global foreign exchange market
The US Dollar Index (DXY), which measures the US dollar (USD) strength against a basket of six other major world currencies, traded higher at approximately 97.80 at publication.
Currency traders are preparing for a series of speeches from Federal Reserve (Fed) officials throughout the week, which may provide further insights into the outlook for US interest rates.
The Federal Funds Rate was lowered by 25 basis points (bps) to a new target range of 4 percent, marking the Fed’s first interest rate cut of the year.
During the press conference, Fed Chair Jerome Powell referred to this decision as a “risk management cut,” intended to address a declining labor market while inflation remains relatively high. As a result of the unexpectedly dovish comments from Fed officials, the DXY found some support.
Fed Governor Stephen Miran stated that he opposed the quarter-percentage-point cut during the September policy meeting, advocating instead for a larger 50 bps rate cut. Miran has promised to deliver a speech in which he will present a detailed defense of his position.
Forex traders will be closely watching this speech, as comments from Fed officials could impact the currency markets.
However, the US dollar’s potential for further gains may be limited by renewed concerns about the Fed’s independence.
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