Naira likely to break below N1,300/$ amid high FX supply

The Nigerian currency is projected to trade stable to bullish, with a 6-month target in the N1,250/$-1350/$ corridor, supported by CBN interventions and market confidence.

Reserve buffers may be under pressure if international crude prices fall; import demand suddenly rises, or domestic inflation re-accelerates.

The Bullish Floor (Support at N1,250/$ to N1,300/$): This is the effective lower bound of the target corridor. At this lower bound, market players will likely hold less naira in the expectation of CBN intervention, or the rate becomes fundamental for portfolio rebalancing.

The Bearish Ceiling (Resistance at N1,350/$ to N1,400/$): This is the effective upper limit of the target corridor and is dominated by dollar supply when the rate surpasses this level.

This can be triggered by the receipt of export proceeds, foreign portfolio inflows, or a CBN liquidity injection, which means the rate falls back into the target corridor. Regular CBN intervention creates large limit-sell orders for USD in the NFEM.

This step helps to meet excess dollar demand and transfer it into buy-side liquidity for the Naira. Turnover and volatility suppression: Consequently, regular interbank turnover has developed into a kind of convergence that reduces intraday price swings, which creates an environment where the currency can only consolidate and not blow out.

Oil revenue constitutes the mainstay of Nigeria’s external reserves. If our crude prices take a nosedive, it will tighten the external account, and the CBN won’t have enough bullets to defend the support floor.

The Central Bank of Nigeria (CBN) reported gross external reserves of $55bn and net foreign exchange reserves of $46 billion. The Monetary Policy Committee (MPC) also cut the Monetary Policy Rate (MPR) by 350bps from 26.5% to 23.0%. As interest rate cuts usually put pressure on an economy’s domestic currency due to a narrower differential, the medium-term view for the Naira (NGN) in the short term remains cautiously bullish to stable in the N1,320/$ –1,380/$ range

Rebuilding net reserves signals to the market that the CBN can sustain a currency defence, clear existing foreign exchange obligations, and absorb certain shocks. A strong gross reserve position assures foreign investors and domestic importers of FX availability on demand.

This means lower panic buying, hedging through illicit channels, and speculation in the parallel market.

However, seasonal surges in import demand create sudden clusters of heavy dollar-buying orders. If demand overwhelms available market supply, price action will quickly breach the N1,350/$ resistance level.

Policy Transmission & real interest rate: The reduction of the MPR to 23.0% was a policy adjustment at an operational level to relax the borrowing costs for the private sector and debt servicing commitments.

Real Yield Differential: Even at 23.0%, local yield levels remain compelling relative to inflation. In addition, diaspora remittances, improved crude oil export receipts, and net capital inflows continue to boost Nigeria’s FX supply.

NGN Bond yields remain marginally attractive despite the CBN’s deep rate cut. NGN Bond yields provide a competitive proposition to foreign investors, supported by FX market reforms. Local currency assets provide a net real yield of 3%+ in the treasury market, with local yields at 18% and headline inflation easing to ~15%.

This is an attractive investment proposition for local investors and foreign portfolio investors (FPIs) looking for inflation-adjusted yields. Diaspora remittances consistently provide a robust, sustained inflow of FX, which underpins overall liquidity and stability. Rising volumes and higher current account surpluses continue to underpin our gross external reserves and export earnings.

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