The continued appreciation of the naira against the United States Dollar has triggered a wave of losses in the foreign exchange (FX) market with traders in the black market facing huge financial losses.......CONTINUE READING THE ARTICLE FROM THE SOURCE>>>>>
The local currency has gained steadily in recent weeks, prompting concerns among FX speculators and holders of dollar reserves.
Market analysts estimate that the sustained rally of the naira has led to losses of between N10 billion and N20 billion among black market traders who stockpiled hard currencies in anticipation of higher demand.
Many traders had bet on a seasonal rise in FX rates due to increased demand from Nigerians returning overseas.
However, the opposite has played out, leaving them scrambling to offload their holdings.
Last weekend, the naira strengthened from N1,600/$ to about N1,560/$ for the first time in nearly eight months.
At the official market, the exchange rate also fell below N1,500/$ with some analysts predicting that further declines could see the currency approach the N1,400/$ range in the coming weeks.
“The market has realized that January and February turned out to be a winter market for the dollar,” said an FX trader, adding that major holders have begun dumping their reserves to prevent further erosion of value.
The strengthening of the naira is being interpreted differently by market watchers. While some see it as a temporary “dead cat bounce,” others believe it marks the beginning of a broader correction. Comercio Partners, in its 2025 Macroeconomic Outlook, projects the naira could depreciate to N1,800/$ by year-end, while international analysts see the recent gains as part of the naira’s path to fair value discovery.
At a recent Lagos Business School Breakfast Session, Bismarck Rewane, CEO of Financial Derivatives Company (FDC), estimated that the naira’s true market value is at N1,107/$.
Investor sentiment has also shifted in favor of local assets with FX balances in commercial banks dwindling as investors convert their holdings into naira-denominated securities.
Nigeria’s 12-month bond yields are approaching 20%, and with inflation expected to slow in the rebased economic framework, real returns on naira assets are becoming more attractive.
A banking industry source told The Guardian that dollar savings calls have increased significantly, as investors seek to reposition their portfolios for potential gains in local equities and other naira-based assets. “There is a growing sense that holding dollars could become riskier in the short term, especially if the naira strengthens further,” the source said.
The shift in market dynamics has also been influenced by the Central Bank of Nigeria (CBN) maintaining a tight monetary policy stance. With foreign portfolio investment inflows rising under the “Buy Nigeria” campaign, liquidity levels are expected to sustain the naira’s recent stability.
Meanwhile, structural changes in Nigeria’s economic framework, including increased local crude refining and improvements in non-oil exports, are reducing the country’s reliance on FX for imports.
On the global stage, evolving macroeconomic conditions, including the growing influence of the BRICS economic bloc, have also contributed to shifting sentiment around dollar dominance.
Despite these positive signals, experts caution that the naira still faces challenges, particularly in sustaining its gains over the long term. The outcome of the planned reforms in the Bureau de Change (BDC) market, which include increased capital requirements for operators, will be a key test of the CBN’s commitment to maintaining stability.
For now, the local currency’s trajectory remains in focus, as market players weigh the balance between short-term gains and long-term fundamentals in the evolving FX landscape.
