USD/NGN Outlook: Bearish, given that the rate is below its 90-day average and toward recent lows, indicating weakness in the dollar.
Key drivers:
- Rate gap: The Federal Reserve has paused its rate cuts, while the Central Bank of Nigeria is actively injecting dollars to stabilize the naira, broadening the divergence between their monetary policies.
- Risk/commodities: Oil prices are trading significantly above their recent average, supporting the Nigerian economy, which relies on oil exports, and providing stability to the naira.
- Macro factor: Nigeria's external reserves have grown notably, which reinforces the naira's strength against the dollar despite inflation pressures.
Range: The USD/NGN is likely to drift within the established range as both currencies react to ongoing economic developments.
What could change it:
- Upside risk: Strong economic data from the U.S. could renew interest in the dollar, influencing its value against the naira.
- Downside risk: Further actions by the Central Bank of Nigeria, such as increased interventions, could bolster the naira and push the USD/NGN lower.
