The Nigerian naira experienced a relatively narrow and steady trading session this week, starting the final day at around N1,366.5/$ at the Nigerian foreign exchange market
Recent market behavior suggests the US dollar faces significant headwinds against the naira in the short term amid increased central bank interventions, automatic supply, local bank sales, and a psychological/technical barrier at the N1,400/$ mark.
Nigeria’s external reserves, around $52.5 billion, provide robust backing—covering at least nine months of imports and giving the Central Bank of Nigeria (CBN) enough resources to counter speculative pressures.
The CBN continued to be an active and influential player in the currency market, mainly through sustained interventions such as direct dollar sales to BDCs and other dealers, which are among the strongest measures to curb volatility.
However, maintaining the naira within the N1,350/$-N1,375/$ range heavily depends on Nigeria’s ability to sustain high gross FX reserves, supported by the CBN’s defense strategies.
Consequently, the Cash Reserve Ratio is set at 45%, aimed at controlling naira liquidity in the Nigerian banking industry.
Nigeria’s interest rates are already high enough to absorb excess liquidity with the MPC’s rate hikes in response to persistent inflation, this indicates a cautiously managed stability; however, underlying economic conditions implied such stability largely depends on oil revenues and the CBN’s ability to maintain high rates that control inflation without overly slowing economic growth.
There is increased interest from domestic and international investors in naira-denominated assets like sovereign bonds and money market funds, supporting medium-term demand.
Outlook
Naira Strength: Consistent flows and strong crude prices would drag the pair lower, but robust CBN interventions will likely temper it before the naira strengthens past N1350/$, thus maintaining the competitiveness of Nigeria’s exports.
Resistance Zone (Naira Weakness): N1,420 – 1,450/$. Above this level, breakouts on official platforms typically reflect abrupt upticks in corporate FX demand, or short-lived liquidity deficit.
The naira is expected in the short term to remain range-bound, with a slight depreciatory bias in the medium term, in line with the inflation differential to the US dollar.
US dollar index trade near 100 resistance line as traders seek clarity in Iran
Meanwhile, the dollar index hovered near 99.75 during Thursday’s European session, buoyed by safe-haven demand amid uncertainties in US-Iran talks.
- Iranian Deputy Foreign Minister Kazem Gharibabadi said on Wednesday that ” Iran and Oman are on the threshold of finalization of the plan proposed by Iran on how to ensure trade traffic through the strait”, adding that “however, this does not mean automatic reopen the Strait”, according to CNN News.
Donald Trump said that he has had “extremely productive discussions” with Iran, and market anxiety about a possible agreement is pushing the US Dollar higher against its main counterparts as officials from Washington and Tehran continue to exchange conflicting rhetoric.
In addition, hawkish comments by Fed officials could add additional upward momentum to the DXY. Specifically, Jeff Schmid, Kansas City’s Fed president, said earlier today that tighter policy may be needed to tame inflation back to its current 2.0 per cent target.
Market expectations for a Fed rate hike in September stand at about 54.7%, according to CME FedWatch. Rumors suggest Iran aims to restrict US and Israeli ships from the Straits of Hormuz while securing payments opposing tolls and favoring user fees—making a lasting agreement difficult.
The ongoing tension and distrust between the US and Iran suggest the situation may worsen despite recent rhetoric. For now, we anticipate a gradual return to normal flows through Q3, with Brent crude trading around $80 per barrel this quarter, though risks remain tilted to the upside.