Naira Slides Further as Oil Prices Dip, Ceasefire Eases Middle East Tensions
The Nigerian naira faced renewed pressure on Tuesday, trading around ₦1,600 per US dollar on the parallel market and closing at ₦1,550/$ in the official Nigerian Foreign Exchange Market (NFEM). According to Central Bank of Nigeria (CBN) data, this marks a slight depreciation from ₦1,547/$ last Friday.
The recent weakness reflects a blurred macroeconomic outlook, influenced largely by declining crude oil prices—a key source of foreign exchange for Nigeria—and shifting global geopolitical dynamics.
Oil Prices Slip Below $70 as Israel-Iran Ceasefire Cools Markets
The primary external driver weakening the naira is the drop in global crude oil prices, which fell below $70 a barrel following the announcement of a ceasefire agreement between Israel and Iran, brokered by former U.S. President Donald Trump. Oil markets, sensitive to Middle East tensions, responded swiftly, reducing risk premiums and dragging down prices.
For oil-dependent economies like Nigeria, lower oil prices translate to reduced FX inflows, placing added pressure on both fiscal and external balances.
The ceasefire deal, reportedly set into motion with diplomatic support from Qatar and U.S. officials, has brought temporary relief to markets. Trump described it as the conclusion of what he called “The 12-Day War,” while Iran and Israel have both signaled cautious compliance. Still, sporadic reports of missile activity and unresolved issues, such as nuclear tensions, indicate underlying fragility.
CBN Conducts OMO Auction to Curb Excess Liquidity
In an effort to rein in liquidity and tame inflationary pressures, the CBN held an Open Market Operations (OMO) auction, offering short-term instruments across 155-day and 204-day tenors. The auction generated ₦1.14 trillion in subscriptions, out of which ₦1.07 trillion was allotted.
Stop rates stood at 24.2% and 24.6%, indicating strong investor appetite amid elevated domestic interest rates.
This move signals the CBN’s continued commitment to monetary tightening, even as exchange rate volatility remains a concern.
U.S. Dollar Index Dips, Fed Comments Spur Speculation
Meanwhile, the U.S. Dollar Index slipped to 98.25, pressured by dovish signals from Federal Reserve officials and anticipation of Fed Chair Jerome Powell’s testimony later this week. Markets are adjusting to growing expectations that the Fed may cut interest rates in the near term, especially as inflation appears subdued and consumer sentiment softens.
Fed Governor Christopher Waller recently hinted at a potential rate cut by end-July, though most analysts—citing CME FedWatch data—still expect the central bank to hold off until September.
Market Outlook: Naira Faces Headwinds Despite Policy Interventions
As Nigeria continues to navigate both internal and external economic pressures, the naira’s performance will hinge heavily on oil price stability, FX inflow management, and central bank interventions.
While the recent OMO auction may help absorb excess liquidity, weaker oil prices and persistent FX demand remain significant challenges. The ceasefire in the Middle East may offer short-term relief, but with global financial conditions in flux, volatility in emerging market currencies like the naira is likely to persist.
Investors and businesses in Nigeria will be closely monitoring Fed policy, crude oil trends, and CBN's FX management strategies in the weeks ahead.