Naira holds steady amid global Dollar volatility, local FX market challenges

The naira remained in the N1660–N1670 range against the U.S. dollar in the unofficial market on Monday, maintaining its relative stability despite high volatility in the dollar index following President Donald Trump’s inauguration.

Price trends indicate limited motivation among naira bulls to breach the N1500/$ resistance level, as holders and speculators hedge heavily on the dollar.

This comes a year after the naira experienced significant devaluation under President Bola Ahmed Tinubu’s administration, a period marked by sweeping policy changes aimed at unifying Nigeria’s exchange rates.

Experts highlight illicit demand as a primary factor undermining stability in Nigeria’s foreign exchange market.

Speaking at The Covenant Nation’s Platform Economic Outlook for 2025 event, Taiwo Oyedele, chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, pointed to corruption and speculative behaviors as key contributors.

“Nigeria’s biggest problem with FX is not the supply of FX; it is the illicit demand for FX,” Oyedele remarked.

He elaborated on how speculative hoarding of dollars has fueled demand, noting, “Over the past 18 months, the balance of domiciliary accounts has grown by over $6 billion, leaving more than $30 billion in private hands.”

Oyedele further explained that the perception of the naira as a depreciating asset exacerbates this trend. “The belief that the naira will continue to decline becomes a self-fulfilling prophecy as people convert their savings into U.S. dollars, further weakening the local currency,” he added.

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Central Bank of Nigeria (CBN) Governor Olayemi Cardoso underscored the risks of the naira being treated as a tradable commodity rather than a medium of exchange. Speaking at the inaugural conference of the Committee of Heads of Bank Operations in Lagos, themed “The Way Forward: Naira Commoditization,” Cardoso detailed a strategy to restore the naira’s value and dignity.

“The commoditization of the naira is a threat to the financial stability of everyday Nigerians and the economy at large,” Cardoso stated.

He described this phenomenon as the process by which the naira transitions from being a functional currency to a speculative asset with fluctuating value. “The naira is more than a currency; it is a symbol of Nigeria’s identity.

The CBN’s plan involves tightening regulations on domiciliary accounts and speculative FX transactions while incentivizing the use of the naira in domestic and international trade.

Adding to local pressures, global currency markets reacted sharply to comments from President Trump’s administration hinting at potential tariffs on Canada and Mexico.

The dollar index rebounded by 0.6% to 108.65 points on Monday after experiencing its largest single-day loss since late 2023, dropping 1.2%.

READ ALSO: Naira weakens further, hits N1,544.50/$1 on official market, N1,647/$1 in parallel trade

“The unexpected tariff discussions have given the dollar a temporary boost,” said James O’Malley, a currency strategist with MarketWatch Global. “However, if these tariffs extend to China or other major economies, we may see heightened volatility in the weeks ahead.”

The naira’s relative stability amidst global dollar fluctuations is seen as unusual by analysts, especially given the high demand for dollars in Nigeria’s unofficial market.

However, sustained pressures from illicit FX demand, speculative behaviors, and external economic policies may challenge this stability in the coming months.

Dr. Adekunle Oladipo, an economist at the Nigerian Institute of International Affairs, emphasized the need for structural reforms to complement monetary policies. “The current stability of the naira is tenuous. Without addressing corruption and speculative demand, any gains in the foreign exchange market will remain short-lived,” he warned.