Nigeria’s foreign exchange (FX) market is once again facing renewed volatility as global economic uncertainties, driven by slumping oil prices and protectionist trade measures from the United States, continue to exert pressure on the naira and the nation’s external reserves.
Daily Sun gathered that despite demand pressures and intervention by the Central Bank of Nigeria (CBN), which sold about $634.85 million to authorised banks last week, the country’s foreign reserves fell by 0.3 per cent week-on-week, or $102.14 million (w/w), to $38.04 billion.
Furthermore, the naira fell 2.3 per cent w/w against the greenback to close at N1,603.78/$1. Likewise, the parallel market slipped by 3.4 per cent w/w against the dollar to exchange at N1,600.00/$1.
In the forwards market, the naira rates decreased across the 1-month (-3.0 per cent to N1,670.42/$1), 3-month (-3.6 per cent to N1,752.18/$1), 6-month (-5.2 per cent to N1,870.78/$1), and 1-year (-7.5 per cent to N2,087.66/$1) contracts.
The development, according to industry stakeholders, was due to the pullback which was largely driven by escalating US-China trade tensions, as fresh tariff hikes reignited fears of a global economic slowdown, dampening expectations for oil demand — particularly from key industrial consumers.
On the supply side, OPEC’s decision to bring forward its production ramp-up added further downside pressure, stoking concerns of a potential market oversupply. With weakening demand fundamentals coinciding with increased output, investor sentiment was volatile, leading to broad-based selling across the market.
Already, U.S. investment bank J.P. Morgan has warned that global risks driven by falling oil prices and renewed trade tensions could deepen Nigeria’s macroeconomic vulnerabilities.
The bank, in a research note titled Frontier Local Markets Strategy: Reducing Risk Further, urged investors to close their positions in the country’s treasury bills as Brent crude oil approaches sub-$60 levels.
The bank had backed Nigeria’s carry trade for its high yield and relative stability. However, J.P. Morgan has now shifted its stance, citing a changing global environment worsened by U.S. President Donald Trump’s push for sweeping global tariffs.
“While Nigeria may well avoid a recession itself, the substantial decline in oil prices below its break-even of $60/bbl would push Nigeria’s current account balance into deficit,” the report stated.
Brent crude oil price on Friday fell 1.3 per cent w/w to $64.71/bbl (previously $65.58/bbl), pressured by renewed demand-side concerns and rising supply risks. Despite being an oil-exporting nation, Nigeria is grappling with a paradox: higher oil prices have not translated into stronger FX inflows or currency stability.
But instead, rising costs are fueling inflationary pressures and increasing the cost of imports, further burdening the local currency.
As a result, the naira has continued to depreciate against major currencies, even as the CBN ramps up its interventions to stabilize the FX market. The apex bank has reiterated that it will keep monitoring global developments and will continue to take necessary steps to ensure the naira remains relatively stable.
However, financial experts noted that while the CBN’s interventions may help cushion the naira in the short term, the long-term outlook remains uncertain unless broader reforms are implemented to boost non-oil exports and attract foreign direct investment.
Head, Research and Strategy at Cordros Capital, an investment firm based in Lagos, Jolomi Odonghanro, said that the naira is likely to remain under pressure as the FX market remains highly vulnerable to global shocks, driven by the U.S. tariff-induced trade tensions that continue to trigger capital outflows.
“Compounding this are foreign investors’ concerns over declining oil earnings, stemming from the slump in oil prices — a development that could lead to a trade deficit and a shortfall in the current account.
Nevertheless, CBN’s sustained interventions are expected to cushion the naira from sharp depreciation in the near term. Without structural changes to diversify Nigeria’s export base, reliance on CBN interventions will not be sustainable,” Odonghanro said.
Also speaking, an economic expert at the Lagos Business School, Dr. Ifeanyi Okechukwu, noted that without structural reforms, Nigeria will remain vulnerable to external shocks, even in times of high oil prices.
“Trump wants cheap crude oil and so the level of optimism for the economy should be a cautious one. Although the macroeconomic fundamentals look credible and positive, we are actually in the deep blue sea with what is happening around crude oil prices because foreign investors are not really concerned with our net reserves, balance of trade, as those do not tell you the wealth of an economy.
