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Oil And High Yields Support Goldman’s Bullish View - FX INSIGHTS
FX analysts strengthen their nearer-term Nigerian Naira exchange rate forecasts, arguing that oil revenues, high yields and undervaluation leave room for further gains.
The US Dollar to Nigerian Naira exchange rate (USD/NGN) is forecast to fall to 1,250 over 12 months, with Goldman Sachs bringing forward part of its expected Naira appreciation.
The bank lowered its three-month forecast to 1,300 from 1,325 and its six-month projection to 1,275 from 1,300, while retaining the 1,250 forecast.
Goldman put the pair near 1,325 on 17 September, making its 12-month projection roughly 5.7% below that reference level.
Oil earnings and interest income support the Naira
Expensive oil puts pressure on importing currencies such as the Indian Rupee, but supports Nigeria’s export revenues.
Goldman expects Middle East shipping disruption to persist into 2027, keeping oil prices elevated.
“Given the tailwind from higher oil prices on top of an already strong balance-of-payments backdrop and FX reserve outlook, we see risks as increasingly skewed towards more currency appreciation.”
Its valuation model still judges the Naira deeply undervalued, leaving more scope for exchange-rate gains than in Kazakhstan’s Tenge following that currency’s stronger rally.
Investors also earn interest while holding Nigerian assets, the return known as carry.
Goldman estimates average yields around 20% on open-market-operation securities with maturities exceeding 14 days, implying expected inflation-adjusted yields above 5%, near the highest since 2015.
Reserve policy could determine the pace
Goldman believes the central bank’s accumulation of foreign reserves has limited the Naira’s appreciation:
“Further, we had argued that the central bank was likely leaning against currency appreciation by remaining in reserve-accumulation mode, a policy choice that is proving increasingly costly.”
Buying foreign currency can restrain Naira strength, while absorbing the domestic liquidity created by those purchases carries a cost when interest rates are high.
We see that policy choice as a constraint on how quickly Goldman’s targets can be reached.
The bank explicitly allows for policymakers’ preference for gradual appreciation, so its undervaluation argument does not imply an immediate move to 1,250.
