Naira Weakens as Offshore Demand Outpaces FX Inflows

The naira weakened significantly against the US dollar across foreign exchange (FX) markets, reversing its recent gains as offshore demand outpaced available inflows.

Both the official and parallel markets felt the impact of dollar scarcity, with demand surging beyond supply. Data from the FMDQ platform showed that the naira depreciated by 0.33 per cent, closing at N1,517.24 per dollar on Friday, despite the Central Bank of Nigeria (CBN) resuming FX sales to banks.

The local currency struggled throughout the week, as increased dollar repatriation by foreign investors and corporate entities exerted pressure on the market.

“The naira depreciated this week due to tight dollar liquidity and increased demand from foreign portfolio investors and local corporates,” AIICO Capital Limited stated in a note. The firm noted that offshore demand remained strong, driving rates higher despite the CBN injecting over $131.7 million in intervention sales—the second-largest single-day sale this year.

According to AIICO Capital, the official FX market opened at N1,510 per dollar and saw heavy bidding, pushing the naira to between N1,540 and N1,560 by the end of the week. Despite bond sell-offs, FX demand remained high, fuelled by concerns over Brent crude oil prices.

Total market turnover reached $320 million, with some transactions yet to be recorded. The naira weakened by 1.659 per cent week-on-week, closing at N1,517.24 per dollar from N1,492.49 per dollar the previous week.

Analysts suggest the CBN’s handling of FX supply will determine future currency movements. With reserves exceeding $38 billion, the apex bank has room to stabilise the naira. In the parallel market, the local currency depreciated by N70, closing at N1,570 per dollar as supply constraints intensified.

Meanwhile, oil prices edged higher on Friday but retreated from session peaks after former US President Donald Trump warned of potential sanctions on Russia if it failed to negotiate a ceasefire with Ukraine. Brent crude rose by $1.10 (1.58 per cent) to $70.56 per barrel, while US West Texas Intermediate (WTI) crude gained $1.06 (1.6 per cent) to settle at $67.42 per barrel.

Gold prices dipped slightly but remained on track for a weekly gain, supported by safe-haven demand and weaker-than-expected US job growth. Spot gold fell 0.1 per cent to $2,906.04 an ounce.