Naira projected to stay below N1,400/$ through the festive Season

The official Nigerian Autonomous Foreign Exchange Market (NAFEM) rate has traded comfortably around 1,350/$, supported by the rise in foreign reserves, enhanced diaspora remittances and stable crude output.

Markets forecast the official rate to remain within the 1,290– 1,400/$ zone for the rest of the year.

Nigeria’s foreign exchange reserves are at multi-year highs (over $55bn), enough to meet mid-term liquidity needs.

A high real interest rate, with the Monetary Policy Rate (MPR) at 23%, provides a cushion that limits the most severe downside risks to the naira compared with previous episodes. Buyers and sellers stockpile imported goods, including food, consumer electronics, and clothing, in anticipation of December festivities.

The aggressive narrowing of N1,355/$ mirrors a near-term balance of Central Bank foreign exchange supply against appetite at the official window. That said, seasonal pressure might break that tightness late in Q4.

The parallel market stays in a premium (roughly N1,390/$). Sustained demand leakages into the parallel market imply ongoing micro-tightness that might re-emerge in the official market.

However, recent technical action places naira’s resistance at N1,280 per U.S. dollar at the official market. A breach of this level would likely prompt significant intervention by the Central Bank of Nigeria (CBN).

Holiday seasons traditionally increase foreign exchange purchases in Nigeria to pay for merchandise, including electronics, retail goods, and store inventories, as well as international travel.

Official exchange rates remain close to N1,349/$, but pressure in the black market could widen the spread toward year-end if liquidity buffers decline.

Demand for travel money, international flight bookings, and fees for courses abroad contributes to increased seasonal demand for foreign-exchange liquidity.

Increased dollar inflows from members of the Nigerian diaspora returning home or sending remittances to family provide much-needed foreign-exchange liquidity. This inflow tends to cushion the sharp depreciation that can occur in December.

Furthermore, the CBN remains active in the official foreign-exchange window to temper volatility and narrow the gap between the NAFEM (official) and parallel (black-market)

exchange rates. High yields in Nigerian debt market are intended to attract foreign portfolio investment (FPI) and help keep reserves stable despite seasonal pressures.

The dollar remained near multi-month highs on Monday, surrendering only modest gains after a strong jobs report prompted traders to reassess expectations for Federal Reserve policy. Attention also turned to upcoming inflation data from China and the United States.

The greenback remained firm after the US. Job growth exceeded expectations in November, with broad-based employment gains pushing the labor market further into tight territory and increasing the likelihood of a move at the Federal Reserve’s next meeting.

Nonfarm payrolls showed that U.S. employers added 165,000 jobs last month, compared with forecasts of just 65,000, while the unemployment rate edged down to 4.1%. The data reaffirmed the resilience of the labor market despite mounting economic headwinds.

Money markets now estimate an 81% probability of a 25-basis-point rate increase at next week’s Federal Reserve meeting, up from 71% previously.

Comments from several Federal Reserve officials, including San Francisco Fed President Mary Daly, suggest that a higher-for-longer stance is warranted to contain inflation risks.

The labor-market data decisively shifted sentiment, reinforcing the view that the Federal Reserve will need to maintain restrictive monetary policy for longer.

Foreign-exchange traders are preparing for a week of significant U.S. economic releases. Tuesday’s U.S. Consumer Price Index report and Friday’s Producer Price Index data are expected to provide a fuller picture before Federal Reserve officials enter their pre-meeting blackout period.

Your email address will not be published. Required fields are marked *

Save my name, email, and website in this browser for the next time I comment.

Notify me of follow-up comments by email.

Naira weakens 0.22% as FX turnover slows to $1.45 billion in November’s first week

Naira falls to N1,350.45/$ at NFEM, extending November losses

Naira slips to N1,348/$, as FX turnover drops below $101 million