Deutsche Bank adds Nigeria to Frontier FX Watchlist, bets on naira gains

Deutsche Bank AG has added Nigeria to its frontier foreign exchange monitor, signalling growing investor interest in the naira amid expectations that the currency could strengthen further against the US dollar.

The German multinational bank considers the naira undervalued and attractive for carry-trade investors, who seek to profit from differences in interest rates between currencies.

Data compiled by Nairametrics Research from official exchange rate figures shows that the Nigerian naira appreciated by 0.45% against the U.S. dollar in September, strengthening from N1,335.50/$ at the end of August to N1,329.50/$ at the end of September.

The naira closed September N6 stronger against the U.S. dollar, extending its positive performance in the month after showing relative resilience in 2026.

Currency’s appreciation boosts returns

The currency’s appreciation has also boosted returns on Nigerian assets, including equities and local-currency bonds, which have delivered some of the highest returns globally.

According to Bloomberg, strategists and economists at the Frankfurt-based lender see the naira as undervalued, with attractive carry opportunities and favourable real interest rates supporting its outlook.

However, the bank warned that fiscal pressures could pose a significant risk to the currency’s performance.

• “The principal risk to the outlook is from the fiscal side,” the bank said on Monday, pointing to the Debt Management Office’s bond issuance calendar for the quarter, which signals “elevated issuance levels.”
• Deutsche Bank expects fiscal spending to increase ahead of Nigeria’s January elections but sees “less risk from the elections themselves.”

What is driving the outlook?

Deutsche Bank’s frontier FX monitor also tracks other African currencies, including Angola’s kwanza and Ghana’s cedi.

The bank said the three economies have performed well this year despite the fallout from the conflict in the Middle East.

• Higher crude oil prices have supported the external positions of Nigeria and Angola, while firmer gold prices have benefited Ghana’s economy.
• According to the lender, these favourable commodity-price movements have strengthened the countries’ current-account positions.
• The economies are also benefiting from relatively high real interest rates and substantial foreign exchange reserves, conditions that have helped attract foreign investor inflows.
• For Nigeria, these factors have supported the naira by improving foreign exchange availability and making local-currency investments more attractive to international investors.

However, the sustainability of these gains will depend partly on fiscal developments, foreign exchange liquidity and the country’s ability to maintain investor confidence.

FTSE Russell reclassifies Nigeria

Deutsche Bank’s decision comes weeks after global index provider FTSE Russell reclassified Nigeria from Unclassified to Frontier Market status, effective September 21, 2026.

Nigeria was removed from FTSE Russell’s Frontier Market indices in September 2023 following persistent difficulties faced by international investors in repatriating capital and executing foreign exchange transactions.

The index provider subsequently acknowledged improvements in Nigeria’s foreign exchange market and the clearance of outstanding FX backlogs before approving the country’s return to Frontier Market status earlier this year.

The reclassification could improve Nigeria’s visibility among international investors whose investment decisions are influenced by benchmark indices.

Combined with the naira’s recent performance, the development signals improving perceptions of Nigeria’s foreign exchange market, although sustained capital inflows will depend on liquidity, market access and macroeconomic stability.

USD/NGN exchange rate outlook

Nairametrics reported that recent fundamental analysis projects that the USD/NGN exchange rate will trade within the N1,290 to N1,370 per dollar range through October.

The Monetary Policy Committee’s decision to reduce the monetary policy rate to 23%, alongside seasonal fourth-quarter import demand, could limit further appreciation of the naira.

• Nevertheless, the interest-rate differential between Nigeria and the United States continues to support the attractiveness of naira-denominated assets to foreign portfolio investors.
• Disinflationary trends, with inflation approaching 14%, and increased domestic petroleum processing are also supporting the outlook for real returns and helping moderate pressure on the currency.
• Despite these supportive factors, fiscal borrowing, seasonal demand for foreign exchange and developments in global commodity markets remain important variables for the naira.

For investors, Deutsche Bank’s inclusion of Nigeria in its frontier FX monitor adds to the positive signals surrounding the currency. However, the extent to which these developments translate into sustained appreciation will depend on continued foreign exchange liquidity, attractive real yields and fiscal discipline.