Market News

LAGOS – Nigeria’s foreign exchange market may be showing signs of greater stability, but the naira’s performance in July has exposed a persistent fault line: demand for dollars remains strong enough to require substantial intervention by the Central Bank of Nigeria (CBN).

The naira closed July at N1,368/$, stronger than the N1,376/$ recorded at the end of June. On the surface, the N8 appreciation appears to reinforce the emerging narrative of a more stable currency following months of relative calm in the FX market.

But a closer look at the numbers tells a more nuanced story. The naira’s average exchange rate weakened by 0.4 percent month-on-month to N1,373.43/$ in July, from N1,368.14/$ in June.

This suggests that the month-end appreciation did not reflect the underlying dynamics in the market where persistent demand for foreign exchange continued to put pressure on the currency.

For investors and businesses, this distinction is critical. A stronger month-end exchange rate is encouraging, but sustained currency stability ultimately depends on whether FX supply can consistently meet demand without excessive reliance on official intervention.

CBN Steps Up Market Support

The clearest indication of the pressure confronting the market came from the scale of the CBN’s intervention. FMDQ data showed that the apex bank sold approximately $1.4 billion in foreign exchange during July, representing its highest monthly FX sales since April 2025, when sales also stood at about $1.4 billion.

The intervention demonstrates the CBN’s determination to maintain adequate liquidity and prevent excessive volatility in the official market.

It also highlights the delicate balance currently confronting monetary authorities: keeping the FX market sufficiently liquid to support legitimate demand while preserving the gains made in exchange- rate stability.

The intervention is particularly significant against the backdrop of subdued offshore inflows.

Foreign portfolio investors and other international participants have remained relatively cautious amid heightened global uncertainty, tighter risk management and increased risk aversion.

For Nigeria, weaker offshore participation means that domestic FX demand is increasingly competing for a more limited pool of available foreign exchange.

The CBN’s intervention therefore serves as an important bridge between available supply and prevailing demand. But for investors, it also raises a critical question: How sustainable is the current stability if official intervention remains necessary at such a significant level?

Reserves Provide Cushion

The immediate outlook is nevertheless supported by Nigeria’s external position. Robust external reserves provide the CBN with greater capacity to intervene when demand pressures intensify, while stronger export proceeds should help improve the underlying supply of foreign exchange.

This represents a significant improvement from periods when the FX market was characterised by severe dollar shortages, sharp exchange-rate movements and a large gap between official and parallel markets.

The present environment is considerably more orderly. Yet, the July data suggest that the underlying demand imbalance has not disappeared.

The fact that the CBN had to sell $1.4 billion during the month indicates that market participants continue to require substantial amounts of foreign exchange for trade, investment, portfolio positioning and other transactions. That demand could become more pronounced in the months ahead.

Parallel Market Sends Warning Signal

Developments in the parallel market provide another indication that demand pressures remain elevated. The naira weakened to N1,415/$ in the parallel market at the end of July, compared with N1,405/$ in June.

The N10 depreciation contrasts with the N8 appreciation recorded in the official market over the same period.

While the parallel market does not determine the official exchange rate, its movement remains an important sentiment indicator because it reflects the behaviour of participants unable or unwilling to access sufficient FX through formal channels.

The widening pressure therefore deserves close monitoring. A sustained divergence between official and parallel-market rates could undermine confidence in the durability of current FX stability, particularly if businesses begin pricing foreign exchange costs using the parallel-market rate.

For investors, the spread is equally important because it can influence expectations about future exchange-rate movements and affect decisions on capital allocation, repatriation and hedging.

Seasonal Demand Could Add Pressure

The naira is also heading into a period when seasonal FX demand could increase.

Analysts expect demand pressures to remain elevated in the near term, particularly as businesses and other market participants increase foreign exchange requirements.