The naira experienced a significant rally in August, driven by improved foreign exchange liquidity and stronger dollar inflows. According to market data, the average exchange rate appreciated by 1.46% month-on-month to N1,353.41/$. This marks the second consecutive month of improvement for the naira, which had traded at N1,373.43/$ in July. The strengthening of the naira is attributed to increased foreign exchange inflows, which eased pressure on the domestic currency.
The Nigerian Foreign Exchange Market (NFEM) saw a significant increase in inflows, rising by 19% month-on-month and 54% year-on-year to $5.2 billion in August. This represents the highest level since October 2025 and provided additional dollar supply amid sustained demand for foreign currency. Market operators attributed the improvement to stronger foreign portfolio investment, increased exporter receipts, greater participation by local corporates, and Central Bank of Nigeria (CBN) interventions.
The improved liquidity was also reflected in market turnover, with NFEM turnover rising to about $14.45 billion in August from $12.69 billion in July, representing a 13.8% increase. Average daily turnover also increased to $760.43 million from $551.77 million. This suggests that the foreign exchange market is experiencing increased activity, which is supporting the naira's appreciation.
Despite the improvement in the monthly average rate, the naira's performance during the month was not one-directional. The currency traded between N1,335.50/$ and N1,365.10/$, giving a range of N29.60. The August trading band was wider than the N22.50 range recorded in July, indicating that the currency continued to experience two-way movements.
Analysts attributed the naira's appreciation to improved FX liquidity, citing stronger inflows from foreign investors, exporters, and domestic corporates, alongside CBN interventions and improved confidence in the NFEM framework. However, they cautioned against interpreting the recent gains as a permanent shift in the currency's trajectory, noting that the sustainability of the appreciation would depend on continued FX inflows and adequate dollar supply to meet underlying demand.
The official market also benefited from an improvement in Nigeria's external position, as foreign exchange reserves continued to rise during the month, providing additional support for external payments and confidence in the currency. This improvement could have a positive impact on businesses and investors, reducing uncertainty around the cost of imported inputs and foreign obligations.
A more stable exchange rate could reduce uncertainty around the cost of imported inputs, foreign obligations, and other dollar-denominated transactions for businesses. Companies that rely heavily on imported raw materials, machinery, and other inputs could also benefit from lower naira costs associated with dollar purchases. Improved FX liquidity could make it easier for investors to enter and exit the Nigerian market and repatriate investment proceeds.
Key points
- The naira appreciated by 1.46% to N1,353.41/$ in August, driven by improved foreign exchange liquidity and stronger dollar inflows.
- NFEM inflows rose by 19% month-on-month and 54% year-on-year to $5.2 billion in August, the highest level since October 2025.
- The sustainability of the naira's appreciation depends on continued FX inflows and adequate dollar supply to meet underlying demand.
