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 buyers, who search to revenue from variations in rates of interest between currencies.
Data compiled by Nairametrics Research from official change fee 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 among 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 big danger 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 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 nations’ current-account positions.
- The economies are additionally benefiting from comparatively excessive actual rates of interest and substantial overseas change reserves, situations which have helped appeal to overseas investor inflows.
- For Nigeria, these components have supported the naira by enhancing overseas change availability and making local-currency investments extra engaging to worldwide buyers.
However, the sustainability of those gains will rely partly on fiscal developments, overseas change liquidity and the nation’s capacity 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 buyers 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 status earlier this year.
The reclassification might enhance Nigeria’s visibility amongst worldwide buyers whose funding choices are influenced by benchmark indices.
Combined with the naira’s latest efficiency, the event indicators enhancing perceptions of Nigeria’s overseas change market, though sustained capital inflows will rely on liquidity, market entry and macroeconomic stability.
USD/NGN change fee 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 scale back the financial coverage fee 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 help the attractiveness of naira-denominated belongings to overseas portfolio buyers.
- Disinflationary developments, 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 international commodity markets stay vital variables for the naira.
For buyers, Deutsche Bank’s inclusion of Nigeria in its frontier FX monitor adds to the optimistic indicators 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.
