Naira Weakens Across Official and Parallel Markets Amid FX Supply Constraints
The Nigerian naira closed the previous week on a weaker note, recording depreciation in both the official and parallel foreign exchange market segments. This decline comes amid persistent supply constraints and sustained demand pressures that continue to shape the currency's performance.
Official and Parallel Market Performance
Analysis of Central Bank of Nigeria data reveals that in the Nigerian Foreign Exchange Market (NFEM), the national currency settled at N1,421.63 to the United States dollar, down from N1,417.94/$ recorded the previous week. This represents a noticeable depreciation that reflects ongoing challenges in the forex ecosystem.
The parallel market, often referred to as the black market, mirrored this downward movement with the naira depreciating to approximately N1,487.00/$. This dual-market weakness underscores the broad-based pressure facing Nigeria's currency as demand continues to outstrip available foreign exchange supply.
Analysts Provide Insights on Market Dynamics
Financial analysts have been closely monitoring these developments, offering valuable perspectives on the underlying market forces. Analysts at AIICO Capital noted that trading during the week was characterized by volatility within a relatively narrow band, primarily driven by imbalances between foreign exchange demand and available supply.
The firm observed in its weekly market report that the naira weakened early in the week as demand outpaced supply, before recording a mild recovery on Tuesday following improved liquidity conditions. AIICO's analysis revealed:
"Trading remained within the N1,418–N1,423 range for most of the week, reflecting a cautiously stabilising sentiment. However, by the end of the week, weaker supply levels pushed the currency to a week-on-week depreciation of 26 basis points, equivalent to N3.68."
Cowry Assets Management also reported that the naira weakened across both market segments, citing lingering structural challenges in the foreign exchange market. According to BusinessDay reports, the firm indicated the currency fell 0.26% in the official window and 0.72% in the parallel market, reflecting sustained demand pressures that continue to test the naira's resilience.
External Reserves Show Positive Movement
Despite the pressure on the national currency, analysts pointed to a positive development in Nigeria's external buffers. AIICO noted that external reserves rose by $111.17 million during the week to reach $46.01 billion, providing some short-term support to the market.
Cowry Assets added that this modest improvement in external reserves was supported by multiple factors including:
- Steady oil receipts from petroleum exports
- Stronger non-oil inflows from diverse economic sectors
- A trade surplus contributing to reserve accumulation
Forecast and Market Outlook
Looking ahead, both AIICO and Cowry Assets analysts struck a cautious tone regarding the naira's near-term prospects. AIICO suggested the currency is likely to trade within a similar range in the immediate future unless there is a significant improvement in foreign exchange supply mechanisms.
Cowry Assets warned that structural imbalances could keep the naira under pressure, even as rising external reserves offer some support to market stability. Market participants generally expect movements this week to remain largely driven by foreign exchange supply conditions and liquidity dynamics in the official market segment.
Diaspora Remittances Show Promising Growth
In related developments, Nigeria has recorded a substantial surge in diaspora remittances, with inflows tripling over the past two months to approximately $600 million. Central Bank Governor Olayemi Cardoso highlighted this increase as signaling a notable improvement in the country's foreign exchange position.
Speaking during international engagements, Cardoso explained that monthly remittance inflows have risen from around $200 million to $600 million and are projected to climb to at least $1 billion by year-end. This growth in diaspora remittances represents a potentially significant source of foreign exchange that could help alleviate some pressure on the naira in coming months.
The interplay between rising external reserves, growing diaspora remittances, and persistent structural challenges will continue to shape the naira's trajectory in Nigeria's complex foreign exchange landscape.
