Naira shows signs of resilience despite global dollar strength, domestic challenges

The Nigerian Naira opened Friday’s trading session at N1,580 per dollar in the parallel market, slightly appreciating from N1,590 per dollar recorded on Thursday, despite the bullish trend of the U.S. dollar index in the global financial market.

Recent economic indicators in Nigeria suggest that the Naira remains vulnerable due to the country’s heavy reliance on crude oil exports for foreign exchange earnings.

Weak global oil demand, escalating trade tensions between the United States and key trading partners, and increased production quotas by OPEC+ are contributing to the Nigerian currency’s struggles.

Bureau de Change (BDC) operators in Nigeria have expressed concerns over an acute shortage of foreign exchange.

The president of the Association of Bureau de Change Operators of Nigeria (ABCON), Aminu Gwadabe, blamed commercial banks for not supplying BDCs with dollars, exacerbating forex scarcity.

At the same time, Nigeria’s dependency on Foreign Portfolio Investment (FPI) inflows is under pressure, as investor appetite for Nigerian one-year treasury bills continues to wane despite the Central Bank of Nigeria’s (CBN) efforts to raise yields.

Yields on one-year treasury bills rose for the second consecutive time at this week’s surprise auction, jumping from 22.52 percent to 24.9 percent due to prevailing liquidity constraints.

However, demand for the one-year treasury bills slumped significantly to N861 billion on Wednesday, down from N1.5 trillion at the first auction of 2024—its lowest level this year.

Further complicating matters, renewed threats of militant attacks on oil infrastructure in the Niger Delta have stoked fears of supply disruptions.

The ongoing political dispute between the Rivers State Government and the Federal Government over revenue allocation has fueled tensions, leading to threats against critical oil facilities.

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Earlier this week, the Trans-Niger Pipeline—one of the primary channels transporting crude from the Niger Delta to the Bonny export terminal—was hit by an explosion, causing a massive fire and forcing an emergency rerouting of oil flows.

Nigeria’s oil production peaked at 1.7 million barrels per day in 2024, with the Federal Government aiming to increase output by another 1 million barrels per day within the next two years.

However, persistent issues of oil theft and pipeline vandalism cast doubts over the feasibility of these ambitious targets, raising concerns over the long-term stability of the Naira.

On the global stage, the U.S. dollar continued to strengthen as traders bet against short-term interest rate cuts by the Federal Reserve. Despite initial losses, the dollar rebounded in Friday’s trading session in London, with the Dollar Index and Dollar Index futures rising by 20 basis points.

Technical indicators show that while bearish pressure on the Dollar Index is easing, upward momentum remains weak. The Moving Average Convergence Divergence (MACD) histogram remains in negative territory, though the Relative Strength Index (RSI) is gradually rising.

The Federal Reserve’s latest policy stance reaffirmed expectations for two rate cuts in 2025, keeping FX traders on high alert. The U.S. Dollar Index has remained within the 103–104 range, supported by strong economic data from the world’s largest economy.

Market sentiment now reflects a reduced likelihood of imminent rate cuts, following the Fed’s decision to maintain interest rates this week.