The Nigerian Naira has shown a muted response to the recent weakening of the US dollar in global markets, highlighting the deep structural issues within Nigeria’s foreign exchange system.
While the US dollar has lost ground internationally due to anticipated changes in Federal Reserve policy, the Naira has failed to strengthen significantly, and in some trading sessions it has even weakened further.
In the official market, the Naira has been trading within a narrow range of N1,409 to N1,421 per dollar, with the official rate closing at N1,421.9/$ at the end of the week of January 24.
Despite the dollar’s decline, the Naira has continued to lose value compared with other emerging market currencies.
Analysts attribute this divergence to domestic factors such as thin foreign exchange liquidity, supply constraints in the official FX window, low dollar inflows, heavy reliance on oil revenues, access restrictions, and the persistent influence of the parallel market.
Market observers note that the Naira’s performance is driven largely by Nigerian-specific challenges. Foreign exchange liquidity in the official market remains limited, and many businesses and individuals still face difficulties accessing dollars for essential transactions.
This has kept demand for the greenback high, even when global conditions would normally ease pressure on the local currency.
Additionally, the country’s dependence on oil revenues makes it vulnerable to fluctuations in global oil prices. Despite global dollar weakness, limited inflows from oil exports and persistent inflation have prevented the Naira from appreciating.
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Interestingly, the parallel (black) market has not mirrored the volatility seen in the official FX market. While it remains a significant factor in the country’s foreign exchange ecosystem, the parallel market’s movements have been relatively more stable compared to the official window.
A consensus among analysts and financial institutions is that the Naira will continue to face pressure through 2026. Most forecasts suggest the currency may either appreciate marginally or remain within a defined range, but a clear strengthening trend is yet to emerge.
Some optimistic scenarios point to the Naira strengthening from a support level of N450/$ to between N1,350/$ and N1,313/$ by mid-2026.
These projections are based on expectations of reform implementation, increased non-oil exports, rising foreign exchange reserves, and possible corrections of the Naira’s perceived undervaluation.
The World Bank recently upgraded Nigeria’s growth forecast to 4.4% in 2026, which could support a stronger currency if sustained.
However, more cautious and bearish forecasts suggest the Naira could weaken further to a range of N1,650/$ to N1,700/$ by mid-2026. Citi, for example, has warned of this scenario due to risks tied to oil prices and potential policy easing by the Central Bank of Nigeria (CBN).
Overall, forecasts average the Naira’s range at N1,400/$ to N1,500/$ for the remainder of the year. Analysts say the currency will continue to be sensitive to global geopolitical tensions, oil price movements, and domestic policy decisions.
In theory, a weaker US dollar should have provided relief for the Naira, as lower dollar strength typically reduces inflationary pressure and can boost commodity prices, including oil.
However, Nigeria’s compounded economic risks—such as limited FX supply, high inflation, and persistent oil sector vulnerabilities—have limited the positive impact of global dollar weakness.
Experts expect the Naira to continue trending downward in 2026 unless significant fiscal reforms are implemented to improve domestic cash inflows.
Continued interventions by the CBN, oil market activity, and future Fed policy decisions will remain key drivers of volatility in the FX market.
The US dollar has begun the year on the back foot, with the US Dollar Index (DXY)—which tracks the greenback against six major currencies—falling by 0.4% to close at 97.
Analysts attribute this weakness partly to shifting global sentiment, as countries reduce exposure to US assets amid strained diplomatic relations.
The recent dispute between the United States and several European Union countries over Greenland’s future has further strained ties with major trading partners.
In a related development, Danish pension firm AkademikerPension announced it was selling $100 million in US Treasury holdings, reflecting broader concerns over US fiscal stability amid its debt crisis.
Analysts, however, maintain that the fund’s move is unrelated to diplomatic tensions, emphasizing that concerns are driven by financial and fiscal risks.