Market News

Nigeria’s naira strengthened 4.31 percent in February, defying late-month dollar purchases by the Central Bank of Nigeria (CBN) aimed at preventing what policymakers viewed as excessive currency appreciation, according to a report by the Financial Market Dealers Association (FMDA).

The report shows that the local currency firmed across both the Nigerian Foreign Exchange Market window and the parallel market, even as the apex bank stepped in to absorb foreign exchange liquidity toward the end of the month.

The move, according to market participants, was designed to keep the currency from strengthening too sharply, a scenario that could distort returns for investors who bought into local fixed income securities when the naira traded between N1,400 and N1,500 to the dollar.

“Despite the CBN’s late-month FX purchases to prevent excessive naira strengthening that could distort investor positioning, the currency still appreciated across both the NFEM and parallel markets,” the FMDA said.

The appreciation marked a reversal from earlier volatility and came amid improving foreign exchange sentiment supported by rising oil prices and stronger external buffers.

Short-term pressures, however, remain visible. On Tuesday, the naira weakened by N6.27 at the NFEM to close at N1,384.29 per dollar, representing a 0.5 percent depreciation compared to N1,378.02 quoted on Monday, data from the Central Bank showed. The currency also slipped in the parallel market, closing at N1,380 per dollar on Tuesday from N1,375 the previous day, a N5 loss.

Analysts say the broader trajectory remains tied to global oil dynamics. Crude prices climbed to around $80 per barrel as tensions escalated between the United States and Iran, offering support to Nigeria’s external earnings and foreign exchange liquidity.

“Crude oil prices will continue to offer a buffer for the naira as tensions escalate between the US and Iran,” FMDA analysts said. “If inflows from crude oil continue to increase due to rising global oil prices, the CBN would be expected to mop up excess liquidity to prevent the naira from reaching a point that could trigger investors.”

Market estimates suggest that a full disruption of the Strait of Hormuz, which accounts for roughly 25 percent of global seaborne oil trade, could push crude prices toward $120 to $150 per barrel. Such a spike would significantly improve Nigeria’s export revenues, although it could also fuel domestic inflationary pressures.

“As we estimated in February, geopolitical tensions could continue to offer a buffer to the naira due to rising oil prices, and the naira has indeed gained from this windfall,” FMDA stated. “With the escalation between the US and Iran and the potential for disruption at the Strait of Hormuz, oil supply could be disrupted, thus continuing the increase in prices to over $100 per barrel.”

Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise, said escalating tensions among Iran, the United States and Israel could provide short-term relief for Nigeria’s foreign exchange market, but cautioned that the benefits may come at a cost.

While stronger oil prices could boost dollar inflows and stabilise the currency, higher energy costs globally could transmit inflationary shocks domestically, worsening household welfare in an economy already grappling with elevated price levels.

Nigeria’s external buffers have strengthened in recent months. Gross external reserves climbed to $49.69 billion as of February 27, 2026, according to data published by the Central Bank of Nigeria.

Olayemi Cardoso, the CBN governor recently disclosed that the country’s net external reserves surged 772.18 percent over two years to $34.80 billion at the end of 2025, up from $3.99 billion in 2023, reflecting improved FX management and rising oil receipts.

The combination of stronger reserves, oil windfalls and active Central Bank intervention underscores a delicate balancing act: allowing the naira to appreciate enough to reinforce investor confidence, while preventing sharp gains that could disrupt carry trade positions and fiscal planning benchmarks.