Deutsche Bank AG has added Nigeria to its frontier overseas change monitor, signalling rising investor curiosity within the naira amid expectations that the foreign money might strengthen additional in opposition to the US greenback.
The German multinational financial institution considers the naira undervalued and engaging for carry-trade traders, who search to revenue from variations in rates of interest between currencies.
Data compiled by Nairametrics Research from official change price figures exhibits 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 optimistic efficiency within the month after exhibiting relative resilience in 2026.
Currency’s appreciation boosts returns
The foreign money’s appreciation has additionally boosted returns on Nigerian belongings, together with equities and local-currency bonds, which have delivered a few of the highest returns globally.
According to Bloomberg, strategists and economists on the Frankfurt-based lender see the naira as undervalued, with engaging carry alternatives and beneficial actual rates of interest supporting its outlook.
However, the financial institution warned that fiscal pressures might pose a major threat to the foreign money’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 alerts “elevated issuance levels.”
- Deutsche Bank expects fiscal spending to enhance 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 effectively this 12 months 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 change reserves, circumstances which have helped appeal to overseas investor inflows.
- For Nigeria, these components have supported the naira by bettering overseas change availability and making local-currency investments extra engaging to worldwide traders.
However, the sustainability of those gains will rely partly on fiscal developments, overseas change liquidity and the nation’s skill to preserve investor confidence.
FTSE Russell reclassifies Nigeria
Deutsche Bank’s choice comes weeks after world index supplier FTSE Russell reclassified Nigeria from Unclassified to Frontier Market standing, 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 change transactions.
The index supplier subsequently acknowledged enhancements in Nigeria’s overseas change market and the clearance of excellent FX backlogs earlier than approving the nation’s return to Frontier Market standing earlier this 12 months.
The reclassification might enhance Nigeria’s visibility amongst worldwide traders whose funding choices are influenced by benchmark indices.
Combined with the naira’s latest efficiency, the event alerts bettering perceptions of Nigeria’s overseas change market, though sustained capital inflows will rely on liquidity, market entry and macroeconomic stability.
USD/NGN change price outlook
Nairametrics reported that latest basic evaluation initiatives that the USD/NGN change price will commerce inside the N1,290 to N1,370 per greenback vary by October.
The Monetary Policy Committee’s choice to scale back the financial coverage price to 23%, alongside seasonal fourth-quarter import demand, might 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 belongings 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 reasonable strain on the foreign money.
- Despite these supportive components, fiscal borrowing, seasonal demand for overseas change and developments in world commodity markets stay necessary variables for the naira.
For traders, Deutsche Bank’s inclusion of Nigeria in its frontier FX monitor adds to the optimistic alerts surrounding the foreign money. However, the extent to which these developments translate into sustained appreciation will rely on continued overseas change liquidity, engaging actual yields and monetary self-discipline.
