Naira Slides to N1,600 as Market Eases and CBN Acts

The Nigerian naira traded at about N1,600 against a dollar in the parallel market on Tuesday, as the currency remains under pressure. 

The local currency lost a bit in the official Nigerian Foreign Exchange Market (NFEM) to N1,550 per dollar from N1,547 per dollar last Friday, according to the Central Bank of Nigeria (CBN) figures.

Naira performance is being driven by a mix of external and local determinants, most significantly declining Middle Eastern and local Nigerian monetary policy actions and calming the region’s geopolitics. Crude oil, the foundation of foreign exchange revenues for Nigeria, recently dipped below $70 a barrel. This came on the heels of diplomatic victories, such as a ceasefire deal between Iran and Israel mediated by players in the international community like the United States and Qatar.

While the relative stability brought relief from foreign markets, it was not as welcome to oil-exporting nations like Nigeria. Declines in oil prices would otherwise translate to reduced foreign exchange receipts for Nigeria, its currency further squeezed and denying the central bank the ability to defend the naira through intervention.

Despite the foreign events, monetary tightening policies are being aggressively pursued by the CBN. The bank on Tuesday conducted an Open Market Operation (OMO) auction, selling securities of tenor 155 days and 204 days. The instruments are meant to absorb excess liquidity in the system and curb inflationary pressures. The CBN sold N1.07 trillion under the auction, which attracted N1.14 trillion subscriptions. The 24.2 percent and 24.6 percent auction cut-off rates were retained, which are the tight monetary stance the central bank is taking to shield the naira and mop up inflationary pressures. Money markets in other regions of the globe, however, are transmitting the recent softening of geopolitics.

The US Dollar Index dropped to 98.25 on ceasefire accord reports in the Israeli-Iranian conflict. While the situation in the region continues to be unstable, initial signs of de-escalation have raised the morale of investors across the globe. President Trump, in a Truth Social post, referred to the situation as the end of what he called the “12 Day War,” and credited restraint and leadership to both nations. Despite assurances of peace, earlier in the week reports emerged of missile fighting in Beersheba and Tel Aviv that underscored the fleeting nature of the truce. Still, Iran appeared to have consented to the terms of the ceasefire, but on the condition of conditions on the behavior of Israel. The back-channel talks that laid the foundation for the peace agreement were reported to include U.S. officials, such as Secretary of State Marco Rubio and Vice President JD Vance.

Financially, overseas investors are closely observing the U.S.

Federal Reserve. Market attention is moving towards the subsequent speeches of Fed Chairman Jerome Powell and the June Consumer Confidence report release. A few dovish comments recently made by some Federal Reserve officials have fueled speculation regarding the reduction of interest rates. Relatively older Federal Reserve Board member Christopher Waller had earlier signaled a rate cut later in July. 

However, data from CME Group’s FedWatch tool suggests that the majority of the investors currently anticipate a rate cut in September and not earlier. For Nigeria, this anticipated reduction of U.S. interest rates should eventually reduce some of the pressure on naira, especially as domestic capital flows unwind against risk of potentially weaker dollar. But with oil prices in check and domestic inflation still high, recovery in naira is uncertain in the near term.

In the big picture, Nigeria’s currency still shows local problems and international trends. While diplomatic wins in the Middle East have imparted temporary stability in energy markets, these later went on to push crude oil prices lower, damping FX inflows into Nigeria. Locally, the CBN is doubling down on tight monetary stances but ultimately the general economic recovery and naira stability will be a function of enduring structural reforms, higher oil production, and benign global financial conditions.