Market News

The naira ended the five-day trading week on a strong note, as the dollar fell to N1,386.55 at the official foreign exchange market, marking the currency’s strongest performance in about two years.

Data from the Central Bank of Nigeria (CBN) showed that the naira appreciated by N35.08, with the dollar quoted at N1,386.55, representing a gain of 2.53 per cent compared with N1,421.63 quoted at the Nigerian Foreign Exchange Market (NFEM) on Friday last week.

The local currency opened the week at N1,418.95 per dollar and gained 2.34 per cent, or N32.40, by the close of trading. On a day-on-day basis, the naira strengthened by N10.44, or 0.75 per cent, on Friday to close at N1,386.55, compared with N1,396.99 quoted on Thursday at the NFEM.

At the parallel market, also known as the black market, the naira appreciated by N18 to close the week at N1,452 per dollar on Friday, representing a gain of 1.23 per cent from N1,470 per dollar recorded earlier in the week.

Nigeria’s external reserves, which provide the CBN with the capacity to defend the naira and stabilise the foreign exchange market, have continued to grow steadily. According to CBN data, gross external reserves rose to $46.17 billion as of January 29, 2026.

A new report by Quest Merchant Bank noted that Nigeria’s foreign exchange market transitioned into a more stable regime in 2025, reflecting the cumulative impact of structural FX reforms, improved market transparency, and sustained tightening of domestic financial conditions. Following the sharp dislocations witnessed in 2024, the naira’s performance improved materially, supported by stronger FX liquidity, enhanced price discovery at the Nigerian Autonomous Foreign Exchange Market (NAFEM), and a gradual restoration of offshore investor confidence.

At the heart of this stabilisation was the CBN’s FX reform agenda. The settlement of legacy FX obligations, alongside the introduction of the Electronic Foreign Exchange Matching System, marked a decisive shift towards a more transparent and rules-based FX market. These reforms reduced information asymmetry, improved market depth, and narrowed the arbitrage gap between the official and parallel markets, which had widened sharply following FX liberalisation in mid-2023. By 2025, price convergence across market segments had largely been restored, significantly dampening speculative pressures on the currency.

According to the report, improved confidence translated into a meaningful recovery in FX inflows. Based on data from FMDQ, average monthly FX inflows increased to $3.9 billion in 2025 from $2.6 billion in 2024, driven mainly by foreign portfolio investment seeking to take advantage of elevated domestic market yields. The CBN’s restrictive monetary policy stance, aimed at curbing inflationary pressures and delivering positive real returns, was instrumental in anchoring these inflows and positioning offshore investors as a key marginal supplier of FX to the market.

FX supply was further supported by strong oil-related inflows and resilient diaspora remittances, which continued to average around $5 billion per quarter, providing a stable and non-cyclical source of foreign exchange liquidity.

These factors helped moderate exchange rate volatility during the year. After opening 2025 at around N1,475 per dollar, the naira traded within a relatively narrow range for most of the year before closing at approximately N1,429 per dollar at the official window. Importantly, the compression of the spread between official and parallel market rates highlighted the effectiveness of ongoing FX reforms and improvements in price discovery.

External monetary conditions also proved supportive. In 2025, the United States Federal Reserve implemented three policy rate cuts amid easing inflationary pressures and signs of cooling labour market conditions, signalling the start of a broader easing cycle across advanced economies. This shift improved global risk appetite and triggered capital flows into higher-yielding emerging and frontier markets, including Nigeria.

According to Quest Merchant Bank, these inflows played a critical buffering role during periods of weaker FX receipts from traditional sources, particularly oil exports, which were weighed down by lower global crude prices despite incremental gains in domestic production.

Looking ahead to 2026, analysts at Quest Merchant Bank expect exchange rate dynamics to remain broadly stable, although subject to intermittent pressures. Oil is expected to continue dominating Nigeria’s external accounts, accounting for nearly 88 per cent of merchandise FX earnings. While a modest improvement in crude oil production is anticipated, the oil price outlook remains tilted to the downside due to expectations of increased supply from non-OPEC producers and a potentially weaker global demand environment. As a result, oil-derived FX inflows are likely to remain volatile and vulnerable to external shocks.

That said, FX liquidity conditions are expected to remain supported by sustained portfolio inflows, steady diaspora remittances, and continued policy discipline, the analysts said.