Naira Defies Dollar Strength, Trades Firm Amid Improved Liquidity

The naira has maintained its upward momentum in Nigeria's foreign exchange market despite the strengthening of the US dollar, thanks to improved domestic liquidity and stronger external reserves.

According to analysts, a weaker dollar typically weakens emerging market currencies. However, several domestic factors have continued to support the naira, including increased foreign exchange market liquidity and higher turnover. Total turnover at the NFEM window surged by 119.9% to $4.2 billion on Thursday from $2.01 billion recorded on Monday.

The number of deals also increased by 10.86% during the week, rising from 1,216 transactions on Monday to 1,348 deals by Thursday. Higher turnover generally signals improved market liquidity, making it easier for businesses, banks, and investors to buy and sell foreign exchange without causing significant volatility in exchange rates.

Nigeria's strong external reserve position is another factor supporting the naira. External reserves, which provide the Central Bank of Nigeria (CBN) with the capacity to intervene in the foreign exchange market and meet the country's external obligations, remained above the $52 billion mark during the week.