Naira strengthens to N1,349 as FX turnover jumps 266%

The naira strengthened to N1,349.54/$ on Monday as a sharp increase in foreign exchange market activity and stronger dollar inflows eased pressure on the local currency, with interbank FX turnover surging 266 per cent to $437.53 million.

The naira appreciated from N1,357.61/$ at the previous close, extending last week’s 0.59 per cent gain, as increased participation by financial institutions strengthened liquidity at the Nigerian Foreign Exchange Market (NFEM).

The official exchange rate traded between N1,347/$ and N1,361/$ during the session, while the number of interbank transactions rose to 178 deals from 137 on Friday.

Interbank FX turnover increased by about $317.94 million, from $119.59 million at the end of last week, pointing to a significant rebound in market activity after the weaker trading levels recorded previously.

The improvement in the naira also came as total foreign exchange inflows into the NFEM rose to $1.77 billion, more than double the $830 million recorded in the previous week, according to Coronation Group’s research subsidiary.

Domestic sources accounted for 63.44 per cent of total inflows, led by exporters with 31.20 per cent and non-bank corporates with 17.67 per cent.

Foreign portfolio investors remained the largest single source of inflows, contributing 33.71 per cent of total dollar supply during the period.

The Central Bank of Nigeria also provided $252.1 million, representing 14.27 per cent of aggregate inflows, helping to deepen liquidity in the official market.

The combination of stronger autonomous inflows and continued CBN support has improved the supply of dollars available to market participants, reducing pressure on the naira.

Nigeria’s gross external reserves also strengthened during the period, rising 0.39 per cent week-on-week to $52.26 billion, from $52.06 billion previously.

The reserve position provides an additional buffer for the naira and strengthens the country’s capacity to absorb temporary shocks in the foreign exchange market.

The parallel-market exchange rate remained unchanged at N1,420/$, leaving a gap of about N70 between the informal and official rates.

The narrowing and relative stability of the official market comes after several weeks of improved currency performance, with the naira gaining against the dollar even as foreign exchange turnover remained volatile.

For businesses and investors, the stronger naira and improved dollar liquidity could ease some of the exchange-rate pressure on importers and companies with foreign-currency obligations, while also improving visibility for businesses planning international transactions.

Analysts expect the naira to remain broadly stable in the near term, supported by stronger autonomous FX inflows, higher external reserves and improved liquidity conditions.

The key test, however, will be whether the sharp increase in dollar inflows and market turnover can be sustained, rather than representing a temporary surge in supply.