USD/NGN – Naira Strengthens in Recent Weeks, Bearish YTD

The USD/NGN exchange rate currently hovers around 1,555 naira per US dollar, with the USD having gained close to 5% against the Nigeria Naira over the past 12 months. The year-to-date performance reveals a 1.16% increase, indicating a general strengthening of the US dollar against the naira, albeit with significant peaks and troughs, including the past month where the Naira has gained more than 3% against the dollar.

This recent move, however, shouldn’t be mistaken for a sign of long-term equilibrium. Technical analysis offers a mixed bag of signals. Support levels are identified between 1,530 and 1,560, representing recent zones of consolidation. Conversely, resistance looms between 1,600 and 1,607, mirroring the year’s highs and posing a significant hurdle for any sustained rally.

The medium-term hinges on Nigeria’s macroeconomic performance. If fundamentals improve, perhaps through successful implementation of new fiscal policies or a surge in oil revenues, the Naira could push below the dollar’s near term support. However, the persistent specter of inflation, coupled with ongoing foreign exchange shortages and the potential for policy shocks, could easily propel the rate back toward, and potentially beyond, the previous resistance. Without substantial structural reforms or a significant influx of foreign capital, the pressure on the naira is likely to intensify over a longer term horizon. The relative weakness of the USD against a broader basket of currencies, with the USD Index down 8.55% since the start of 2025 demonstrates that the Naira is continuing to weaken.

Economic Differences

Nigeria’s economic challenges cast a long shadow over the naira’s prospects. Despite its status as Africa’s largest oil producer, the nation grapples with ongoing issues, and falling oil prices. The government’s allocation of 68% of its revenue to debt servicing in the first half of 2024 leaves meager resources for essential public services and infrastructure development. These factors contribute to a climate of economic uncertainty that weighs heavily on the naira.

Conversely, the US economy presents a picture of relative stability. While unemployment is projected to remain steady at 4.2% before edging up slightly to 4.3% by late 2025, core inflation is expected to remain elevated, reaching 2.8% this year before gradually easing to 2.5% by the end of 2025. This sticky inflation, while a concern for the Federal Reserve, also supports the dollar’s strength. The US Dollar Index (DXY) has been trading within a defined range, with the 105.91 level acting as near-term support.

Momentum indicators suggest a potential move towards the 103.81 – 104.75 range, indicating a possible technical reset.

Recent projections suggest the USD/NGN rate could reach 1,753.657 within a year, underscoring the potential for further naira weakness, although these can shift if policy supports.

Outlook

In conclusion, the outlook for the USD/NGN exchange rate is fraught with uncertainty. While technical analysis suggests a period of consolidation in the short term, the underlying economic realities in both Nigeria and the United States point to continued volatility and a potential for further depreciation of the naira. NGN bulls will be looking for policy reforms, leading to increased investor confidence and foreign capital inflows; along with a sustained rise in oil prices boosting government revenues.