Deutsche Bank AG has added Nigeria to its frontier overseas trade monitor, signalling rising investor curiosity within the naira amid expectations that the forex may strengthen additional in opposition to the US greenback.
The German multinational financial institution considers the naira undervalued and enticing for carry-trade traders, who search to revenue from variations in rates of interest between currencies.
Data compiled by Nairametrics Research from official trade price figures reveals that the Nigerian naira appreciated by 0.45% in opposition to the U.S. greenback in September, strengthening from N1,335.50/$ on the finish of August to N1,329.50/$ on the finish of September.
The naira closed September N6 stronger in opposition to the U.S. greenback, extending its constructive efficiency within the month after displaying relative resilience in 2026.
Currency’s appreciation boosts returns
The forex’s appreciation has additionally boosted returns on Nigerian property, together with equities and local-currency bonds, which have delivered a number of the highest returns globally.
According to Bloomberg, strategists and economists on the Frankfurt-based lender see the naira as undervalued, with enticing carry alternatives and beneficial actual rates of interest supporting its outlook.
However, the financial institution warned that fiscal pressures may pose a major danger to the forex’s efficiency.
- “The principal risk to the outlook is from the fiscal side,” the financial institution mentioned on Monday, pointing to the Debt Management Office’s bond issuance calendar for the quarter, which indicators “elevated issuance levels.”
- Deutsche Bank expects fiscal spending to improve forward of Nigeria’s January elections however sees “less risk from the elections themselves.”
What is driving the outlook?
Deutsche Bank’s frontier FX monitor additionally tracks different African currencies, together with Angola’s kwanza and Ghana’s cedi.
The financial institution mentioned the three economies have carried out nicely this yr regardless of the fallout from the battle within the Middle East.
- Higher crude oil costs have supported the exterior positions of Nigeria and Angola, whereas firmer gold costs have benefited Ghana’s economic system.
- According to the lender, these beneficial commodity-price actions have strengthened the international locations’ current-account positions.
- The economies are additionally benefiting from comparatively excessive actual rates of interest and substantial overseas trade reserves, circumstances which have helped entice overseas investor inflows.
- For Nigeria, these components have supported the naira by bettering overseas trade availability and making local-currency investments extra enticing to worldwide traders.
However, the sustainability of those gains will rely partly on fiscal developments, overseas trade liquidity and the nation’s means to preserve investor confidence.
FTSE Russell reclassifies Nigeria
Deutsche Bank’s determination comes weeks after international index supplier FTSE Russell reclassified Nigeria from Unclassified to Frontier Market status, efficient September 21, 2026.
Nigeria was faraway from FTSE Russell’s Frontier Market indices in September 2023 following persistent difficulties confronted by worldwide traders in repatriating capital and executing overseas trade transactions.
The index supplier subsequently acknowledged enhancements in Nigeria’s overseas trade market and the clearance of excellent FX backlogs earlier than approving the nation’s return to Frontier Market status earlier this year.
The reclassification may enhance Nigeria’s visibility amongst worldwide traders whose funding choices are influenced by benchmark indices.
Combined with the naira’s current efficiency, the event indicators bettering perceptions of Nigeria’s overseas trade market, though sustained capital inflows will rely on liquidity, market entry and macroeconomic stability.
USD/NGN trade price outlook
Nairametrics reported that recent fundamental analysis projects that the USD/NGN exchange rate will trade within the N1,290 to N1,370 per dollar vary by means of October.
The Monetary Policy Committee’s determination to cut back the financial coverage price to 23%, alongside seasonal fourth-quarter import demand, may restrict additional appreciation of the naira.
- Nevertheless, the interest-rate differential between Nigeria and the United States continues to assist the attractiveness of naira-denominated property to overseas portfolio traders.
- Disinflationary traits, with inflation approaching 14%, and elevated home petroleum processing are additionally supporting the outlook for actual returns and serving to average strain on the forex.
- Despite these supportive components, fiscal borrowing, seasonal demand for overseas trade and developments in international commodity markets stay necessary variables for the naira.
For traders, Deutsche Bank’s inclusion of Nigeria in its frontier FX monitor adds to the constructive indicators surrounding the forex. However, the extent to which these developments translate into sustained appreciation will rely on continued overseas trade liquidity, enticing actual yields and financial self-discipline.
