The Nigerian naira is confronting renewed challenges in the foreign exchange market as the US dollar strengthens to a 10-month high, driven by escalating geopolitical tensions in the Middle East and shifting expectations around US monetary policy.
In the official market, the naira traded around N1,383 per US dollar in recent sessions, showing relative stability compared with the extreme volatility of previous years. However, it has struggled to break and hold below the N1,300 level in March, reflecting persistent demand for the greenback.
Since early March, the naira has largely traded within a narrow range of N1,352 to N1,398 per dollar, suggesting the market is pricing in current interest rate levels while awaiting the next major catalyst, such as the outcome of the upcoming Monetary Policy Committee (MPC) meeting.
Technical indicators, including narrowing Bollinger Bands on the USD/NGN daily chart, point to an impending significant price movement. While there is a fundamental bias toward naira strengthening due to decelerating inflation, a sustained move above N1,400 in the official market could open the door to N1,450, analysts say.
The Central Bank of Nigeria’s foreign exchange reserves, currently providing substantial “firepower,” along with efforts to boost domestic oil production and the naira-for-crude policy, have helped anchor the currency against extreme swings. However, the recent dip in reserves and global developments continue to test its resilience.
On the international front, the US Dollar Index approached a 10-month high and is on track for its strongest monthly gain since July last year. The surge has been fuelled by conflicting signals from the US and Iran, which have reduced hopes for a swift resolution to the Middle East conflict.
President Donald Trump described Iran’s new leadership as “very reasonable,” even as additional US troops were deployed to the region and Tehran warned it would not tolerate humiliation. The conflict has effectively disrupted flows through the Strait of Hormuz — a critical chokepoint for roughly one-fifth of global oil and gas trade — pushing Brent crude prices sharply higher.
This energy shock has complicated inflation outlooks globally, prompting currency traders to adjust bets in line with a more hawkish Federal Reserve stance. The probability of at least one rate hike by the end of the year has risen significantly from earlier expectations of two rate cuts.
In Nigeria, the naira’s performance remains closely tied to oil price movements and external reserve levels. While higher crude prices could support foreign exchange inflows, the associated global uncertainties and potential capital flight toward safe-haven assets like the dollar continue to exert pressure on the local currency.
Analysts believe the naira’s near-term direction will depend on the MPC’s policy decision, the trajectory of oil prices, and the evolution of the Middle East conflict. A sustained rise in global energy costs could provide a buffer through improved oil revenues, but any escalation in geopolitical risks may trigger further dollar demand and widen the gap between official and parallel market rates.
As the US economic calendar heats up with the release of March Nonfarm Payrolls data this Friday, currency traders will be closely watching for signals that could influence both the dollar’s strength and the naira’s stability in the weeks ahead.
