Naira faces pressure amid Dollar resurgence,  oil output growth offers hope

The Nigerian naira came under renewed pressure in the parallel foreign exchange market, fluctuating around the N1,620.25/$1 support level amid a global rebound of the U.S. dollar and surging demand for foreign currency by Nigerian importers and individuals.

Despite demand-side pressures driven by the rush to obtain dollars for essential needs and import obligations, optimism persists for the local currency, buoyed by improving fundamentals in Nigeria’s crude oil sector.

Currency dealers reported volatility in the unofficial forex market as the naira lost ground, reflecting a surge in dollar demand from businesses seeking to meet international obligations.

The development coincided with a broader rally in the U.S. dollar globally, as markets reacted to a landmark trade breakthrough between the United States and China.

The U.S. dollar index—measuring the strength of the greenback against a basket of global currencies—rose by 1.5 per cent, while the dollar gained 2.19 per cent against the Japanese yen, touching a record high of ¥148.5, the highest level since early April.

This uptick was largely triggered by an unexpected bilateral agreement in which the U.S. committed to slash tariffs on Chinese goods from up to 145 per cent to 30 per cent, while China will reciprocate by lowering tariffs on American imports from 125 per cent to 12 percent for 90 days.

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According to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), crude oil production climbed to 1.486 million barrels per day (bpd) in April, up from 1.401 million bpd in March—a two-month high.

While still slightly below the Organization of the Petroleum Exporting Countries (OPEC) quota of 1.5 million bpd, the improvement signals gradual recovery for Africa’s largest oil producer.

The federal government remains committed to its “naira-for-crude” policy, which allows advance sales of crude and refined products in local currency. The initiative aims to curb Nigeria’s reliance on the U.S. dollar, improve fuel security, and support local refining efforts.

This was reaffirmed during a follow-up meeting of the technical subcommittee on the naira-for-crude strategy held in Abuja last Thursday. The session, chaired by Wale Edun, Nigeria’s Coordinating Minister of the Economy, reviewed progress since the last engagement.

According to Mohammed Manga, Director of Information at the Ministry of Finance, all milestone targets had been met, and discussions were termed “productive.”

Meanwhile, global market sentiment was bolstered by geopolitical shifts, including a ceasefire declaration by India and Pakistan after four days of intense conflict, and a potential thaw in Russia-Ukraine relations as President Volodymyr Zelensky expressed readiness for direct talks with Russian President Vladimir Putin.

In the financial markets, investors are now keenly awaiting the release of the U.S. Consumer Price Index (CPI) on Tuesday and April retail sales data on Thursday. These indicators will provide insights into inflation and consumption trends in the U.S., potentially influencing interest rate decisions by the Federal Reserve.

Market projections now suggest that the Fed’s first interest rate cut of at least 25 basis points may occur at its September meeting—pushed back from earlier expectations of a July cut—due to improved economic prospects following the Sino-American trade deal.

While the naira faces short-term depreciation pressures from heightened dollar demand and a strong U.S. currency, analysts remain cautiously optimistic. The modest recovery in oil production and ongoing fiscal and monetary reforms, including the naira-for-crude initiative, could help stabilize the local currency in the medium term.

However, forex liquidity constraints and inflationary pressures still pose significant risks, and the Central Bank of Nigeria’s policy responses in the coming weeks will be critical in shaping the naira’s trajectory.