The Nigerian naira continued its recent recovery against the US dollar in the official foreign exchange market on Wednesday, driven by robust demand and sustained Central Bank of Nigeria (CBN) interventions.
The local currency appreciated by nearly N10, closing at N1,357 per US dollar. This marks a notable improvement from N1,375.5/$ at the beginning of May, representing a gain of approximately 1.2% within the first week of the month.
Market analysts attribute the upward movement to rising participation from both international and local investors, alongside the CBN’s consistent supply of foreign exchange to the market. Trading volumes have risen significantly, reflecting greater confidence and active price discovery rather than panic-driven hedging.
Policy Support and Market Dynamics
The CBN’s tight monetary stance, which has kept interest rates elevated to combat inflation, has enhanced the appeal of naira-denominated instruments such as Treasury bills. This has provided important support to the currency.
However, the market may soon face challenges. More than N10.53 trillion in liquidity is expected to enter the banking system in May from maturing Treasury bills and Open Market Operations (OMO). Analysts warn that this influx could test the CBN’s ability to sterilize excess funds and exert renewed pressure on the naira.
Looking ahead, experts project a mild depreciation in the second half of 2026, largely due to anticipated increase in government spending ahead of the 2027 general elections.
Global Backdrop Aids Naira Stability
The naira is also benefiting from a relatively stable global environment. The US Dollar Index (DXY) has been trading around 98 points after recent losses, pressured by softer-than-expected US economic data, including weaker manufacturing and retail sales figures. This has lowered expectations for aggressive interest rate hikes by the US Federal Reserve, whose benchmark rate remains around 3.75%.
Reduced safe-haven demand for the dollar following optimism around a potential US-Iran agreement that contributed to lower oil prices has further eased pressure on emerging market currencies like the naira.
Currency traders are now closely watching upcoming US economic releases, particularly the ADP private payroll report and the official April jobs data due on Friday. Strong employment numbers could support the dollar, while signs of economic slowdown may reinforce expectations for future rate cuts.
Overall, the naira has found some breathing space in recent sessions. While domestic fundamentals and CBN actions remain the primary drivers, global sentiment and foreign exchange inflows will continue to shape its performance in the near term.
