The Nigerian naira came under renewed pressure last week, weakening by 0.7% in the official foreign exchange market to close at N1,371.04 per US dollar.
In the parallel market, the currency also lost ground, declining to N1,370.13 per dollar. The narrowing gap between the two windows has virtually eliminated arbitrage opportunities for traders.
The latest depreciation reflects ongoing challenges faced by businesses, particularly manufacturers, who continue to grapple with elevated import costs, high production expenses, and difficulties accessing sufficient foreign exchange. These pressures are further intensifying inflationary trends and eroding broader investor confidence in the economy.
Modest Reserve Gain Offers Limited Relief
Nigeria’s external reserves recorded a marginal increase of 0.19% to $48.54 billion during the week. However, analysts noted that the improvement is too modest to meaningfully boost market liquidity or provide substantial support for the naira.
Persistent demand for dollars from importers, manufacturers, airlines, and other end-users continues to outweigh available supply in the official market.
Structural Headwinds Remain
Financial experts warn that the naira faces deep-rooted challenges, including inadequate non-oil dollar inflows, weak capital importation, declining foreign portfolio investment, and heavy reliance on oil revenues for foreign exchange earnings.
Oil Prices Surge on Geopolitical Tensions
Global crude oil prices rallied strongly during the week amid escalating geopolitical risks involving Iran and fears of potential supply disruptions in the Middle East.
– Brent crude gained 3.24% to close at $109.2 per barrel.
– West Texas Intermediate (WTI) rose 3.73% to $104.9 per barrel.
– Nigeria’s Bonny Light crude jumped 5.99% to $116.99 per barrel.
While higher oil prices are expected to provide some support to Nigeria’s fiscal position and external reserves through increased export earnings, analysts caution that these gains remain vulnerable to sudden shifts in global energy markets and geopolitical developments.
Bond Market Sentiment Turns Bearish
In the domestic fixed-income market, bearish sentiment prevailed as the secondary bond market extended its losses. Weak investor demand and increased sell-offs across most maturities resulted in subdued trading activity.
Analysts attributed the caution among bond investors to persistent inflation concerns, liquidity tightness, and uncertainty over the future direction of monetary policy.
Despite the positive boost from higher oil prices, the naira is expected to remain under pressure in the near term as structural supply constraints in the foreign exchange market persist.
