Nigerian Naira Gains 4.7% in 7 Months, Nears Fair Value
The naira gained about 4.7% in the last seven months, supported by the Central Bank of Nigeria (CBN) series of FX interventions, inflows from yield-seeking foreign portfolio investors (FPIs), exporters, non-bank corporates, and other related sources.
At the beginning of the year, the naira was quoted at the official window at N1435 per US dollar, and ended July at N1366 despite an all-week negative performance.
The pace of exchange rate appreciation was top-notch in the first half, but the local unit rate has become a little subdued amidst growing FX liquidity imbalances.
Naira hit the peak at N1335 in February, reflecting a combination of strong foreign portfolio inflows, broad-based US dollar weakness, and attractive carry opportunities, analysts said.
The onset of the USβIran conflict in late February temporarily triggered renewed pressure, with the naira weakening to N1,407.00/USD by 9 March, Cordros Capital Limited said in its macro outlook for the second half of 2026.
The investment firm noted that pressure was short-lived, as the currency quickly retraced part of its losses and subsequently traded within a relatively narrow band of N1,360.00/USDβ N1,380.00/USD.
βWe expect the naira to remain relatively stable, supported by a strong current account position and resilient FPI inflows amid still-subdued demand pressures. However, upside room from current levels has narrowedβ.
The firm said its model suggests that the naira remains slightly undervalued, although the degree of misalignment has narrowed significantly. In 2025, the model estimated the naira to be undervalued by 18.7%, with a fair value of N1,232.80/USD compared with the average exchange rate of N1,516.36 per US dollar.
βWe believe the substantial valuation discount provided an anchor for the appreciation recorded earlier in 2026. However, the 2026 estimate points to a much thinner valuation cushion.
βThe model now suggests an undervaluation of 2.0%, with a fair value estimate of N1,350.20 to the US dollar compared with the average exchange rate of N1,377.75 per dollar so far in 2026.
βThis implies that the naira has moved much closer to fair value, limiting the scope for further appreciationβ, Cordros Capital Limited said.
The investment firm said it expects the naira to remain broadly stable in H2-2026, with limited room for further gains. Notably, the 2026 fair value estimate is broadly aligned with the year-end forecast of N1,350.00.
βWe expect the currency to trade within the N1,350.00/USDβN1,400.00/USD band in H2-2026, with pre-election spending and pre-emptive FX demand, particularly from importers, likely to trigger episodes of mild depreciation before the naira settles at N1,350.00/USD by year-endβ, Cordros said in the update.
Analysts noted that increased portfolio outflows, underpinned by renewed geopolitical tensions, a stronger global tightening bias, and rising uncertainty ahead of the 2027 elections, could increase FX volatility and push the naira towards N1,450.00/USD by year-end Oil Prices Slide Below $85 as Supply Risk Eases
