- The naira maintains strength against the dollar, hitting a four-month high amid inflation concerns and expectations of delayed rate hikes
- Analysts predict the naira may soon test the N1000 mark, supported by CBN’s FX reforms and clearance of backlog
Despite the dollar’s recent aggressive gains, the naira has maintained its bullish stance, fueled by concerns over persistent inflation and expectations of delayed interest rate hikes by the Federal Reserve. This has led to the naira reaching a four-month high of N1,120 per dollar on the black market, supported by increased activity in Nigeria’s money market and FX reforms by the Central Bank of Nigeria (CBN) that have unlocked dollar liquidity.
With the naira breaking a key resistance level of N1,200 against the dollar, analysts believe the local currency may test the N1000 mark soon. The CBN’s clearance of the FX backlog, estimated at $7 billion, has been a significant turning point for the naira, driving it to its highest trading level since mid-last year.
Goldman Sachs sees Nigeria’s rate increases and improved capital inflows as indicative of a potential turnaround for the naira. Additionally, Renaissance Capital projects that the naira is undervalued and should ideally be valued at N912 against the dollar.
In April, the CBN implemented measures to enhance the FX market, including prohibiting dollar collateral for naira loans, except for government Eurobonds and foreign bank guarantees, and offering dollars to Bureaux de Change at more market-reflective rates.
Andrew Matheny, an economist at Goldman Sachs, expressed optimism about the naira’s future, suggesting it could extend its gains to trade below N1,000 to the dollar. He emphasized the possibility of the naira reaching levels below N1,000, reflecting the positive sentiment surrounding the currency’s trajectory.