Naira Depreciates Amid Heightened FX Demand and Increased Equity Selloffs by Foreign Investors

Naira Depreciates as Foreign Equity Selloffs Drive Up Demand for US Dollars

The Naira weakened by approximately 0.20% against the US Dollar at the Nigerian Foreign Exchange Market (NFEM) on Monday, driven by sustained capital outflows as foreign investors exit the local stock market.

According to daily data from the Central Bank of Nigeria (CBN), the official spot rate closed at N1,383.6262 per dollar on Monday, an increase from the N1,380.9329 recorded at the close of the previous week’s trading session.

Trading within the NFEM window fluctuited between N1,377.50 and N1,390 per dollar, reflecting liquidity constraints and intensified demand for foreign currency.

CBN data further indicated that NFEM interbank turnover surged to $223.938 million, representing an 80% increase from the $124.215 million reported last Friday.

This spike suggests that commercial banks processed a high volume of international payments for clients that exceeded the available supply at the official window, underscor scoring the ongoing imbalance between FX supply and demand.

Market analysts noted that without direct intervention from the CBN,- the Naira will face continued pressure due to limited foreign exchange inflows into the official market.

External factors are also contributing to the volatility. Investors are adjusting to a hawkish stance from the US Federal Reserve, which threatens the competitiveness of Naira-denominated assets. Additionally, analysts point to a “flight to safety” ahead of the election cycle, which is draining liquidity from the local market.

The Nigerian equities market has experienced significant volatility as investors react to rising inflation and concerns regarding fiscal spending ahead of the 2027 elections.

Economists and analysts from Broadstreet have cautioned that pre-election spending could keep inflation and interest rates elevated for the foreseeable future, making foreign investors cautious about maintaining large positions in local markets.

Data from the Nigerian Exchange (NGX) highlights this trend, showing that Foreign Portfolio Investment (FPI) activity fell by 25.9% month-on-month in May, dropping to ₦183.6 billion ($133.7 million) from ₦247.8 billion ($180.2 million) in April.

CSL Stockbrokers Limited noted that this marks the second consecutive monthly decline in foreign participation. FPI transactions accounted for only 9.5% of total market turnover in May, down from 13.7% in the previous month.

Despite the reduction in foreign interest, total market turnover rose slightly to ₦1.9 trillion ($1.4 billion) in May, up from ₦1.8 trillion ($1.3 billion) in April, largely due to heightened domestic participation.

Domestic investors now dominate the market, accounting for 90.5% of total activity, up from 86.3% in April. This domestic-led growth helped stabilize the market despite the exodus of foreign capital.

While the market faces headwinds, CSL Stockbrokers Limited suggested that long-term sentiment could improve, driven by the potential reclassification of Nigerian equities into the FTSE Russell Frontier Market Index by September 2026 and the anticipated listing of the Dangote Refinery on the NGX.

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