The Nigerian naira is firing on all cylinders, mirroring the performance of the Kenyan shilling. The USD/NGN exchange rate plunged to a low of 1,497, its lowest level since March and 7% below the highest level this year. It has plunged by over 11.3% from its 2025 highs.
Why the Nigerian naira currency is soaring
The Nigerian naira, which was one of the worst-performing currencies in 2024, has become one of the top gainers this year.
This surge is primarily due to the country’s elevated interest rates, which have fueled a surge in demand for bonds. The central bank has pushed interest rates to 27.5%, higher than the official inflation rate of 20%.
This, in turn, has pushed the country’s bond yields higher, with the ten-year offering a 16.6% and the two-year offering a 15% return.
These yields are much higher than what similar bonds are offering in the United States, creating a good carry trade opportunity. A carry trade is a situation where investors borrow money from a low-yielding country and invest in a higher-yielding one and cash out the difference.
The only challenge with conducting a carry trade on the USD/NGN pair is that moving dollars from Nigeria has historically been a challenge, as the central bank has prevented capital flight.
Higher oil and non-oil revenue and Dangote refinery
The Nigerian economy has had some major tailwinds in the past few months that have helped to boost the naira.
First, the country’s diversification efforts seems to be bearing fruit as the non-oil revenue jumped by 40% in the first half of the year to N20.5 trillion. This growth means that the president has hit and surpassed his target this year.
Second, Nigeria has benefited from higher crude oil output this year, which is partly because of the decision by the OPEC+ to boost production. This, however, has been offset by the relatively lower crude oil prices this year
Third, the Nigerian naira has also benefited from the recently launched Dangote oil refinery, which is producing thousands of barrels of oil per day, reducing the pressure for important refined petroleum in the country.
Dangote has committed to buy mostly Nigerian oil for his refinery once his foreign contracts end. This, in turn, will boost the Nigerian naira as the country will import less oil than it does now.
Further, the USD/NGN exchange rate has plunged because of the ongoing weakness of the US dollar index (DXY), which has plunged from the year-to-date high of $110 to $96 today because of the ongoing expectations that the Federal Reserve will cut interest rates in the upcoming meeting.
Historically, emerging market currencies thrive when the Fed is cutting rates. This explains why other currencies like the South African rand have surged in the past few months.
Looking ahead, the USD/NGN exchange rate will likely continue falling as traders target the year-to-date low of 1,476.
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