Deutsche Bank has identified the naira as a currency worth watching for foreign investors, forecasting further appreciation against the United States dollar as Nigeria's external position improves. The German multinational lender added Nigeria to its frontier foreign exchange monitor, pointing to the naira's undervaluation and relatively high real interest rates as factors that could attract more capital into the country.
Naira Strengthens by N6 in September
Central Bank of Nigeria data showed that the naira gained 0.45% against the dollar in September, moving from N1,335.50 per dollar at the end of August to N1,329.50 per dollar at the close of the month, representing a N6 improvement. The appreciation has also boosted returns on Nigerian assets, including equities and domestic bonds, drawing fresh attention from international investors.
Bloomberg reported that strategists at Deutsche Bank see the currency as an opportunity for investors seeking to profit from interest rate differences across markets, a strategy known as the carry trade. The bank noted that high real interest rates could increase demand for naira-denominated investments as foreign investors seek competitive returns.
Oil Revenues and Regional Comparisons
Nigeria's oil revenues are another factor supporting the outlook. Higher crude oil prices can boost export earnings and foreign exchange supply, strengthening the country's external position. Deutsche Bank also tracks Angola's kwanza and Ghana's cedi, which have performed strongly this year, partly because of favourable commodity prices.
The addition of Nigeria to the watchlist reflects growing international interest in frontier markets, particularly those with improving external balances and attractive yield differentials. The naira's recent performance has been supported by increased foreign investor interest in Nigerian assets, a trend that Deutsche Bank expects to continue.
Fiscal Risks Could Undermine the Outlook
Despite its positive assessment of the naira, Deutsche Bank warned that fiscal pressures could threaten the currency's gains. The bank said: “The principal risk to the naira outlook is from the fiscal side, with elevated government bond issuance levels.” The lender also expects government spending to increase ahead of Nigeria's January elections, potentially straining public finances and affecting domestic financial markets.
However, Deutsche Bank suggested that the elections themselves pose less of a threat than the borrowing and spending decisions surrounding them. Sustained naira gains will depend partly on steady foreign exchange inflows, attractive domestic investment returns and the government's ability to manage fiscal pressures.
Fuel Subsidy Warning and Market Reactions
Earlier, Legit.ng reported that Taiwo Oyedele, Nigeria's minister of finance and coordinating minister of the economy, cautioned that restoring petrol subsidies could push the naira as low as N4,000 to the dollar. Oyedele warned that even a hint of policy reversal would be enough to rattle financial markets. He made the remarks at a press briefing following the International Monetary Fund and World Bank annual meetings in Bangkok, Thailand, on Monday, October 19.
The minister said foreign and local investors would not wait for a formal policy announcement before reacting. This underscores the sensitivity of the naira to policy signals, particularly those related to subsidies and fiscal management. As Nigeria approaches the January elections, the interplay between fiscal policy, investor sentiment, and currency stability will remain a key focus for market participants.
