Find out more as International Bank predicts further naira gains against dollar

• Deutsche Bank added Nigeria to its frontier forex monitor, describing the naira as undervalued with room for further gains against the dollar.
• The naira strengthened by N6 in September, closing at N1,329.50 per dollar as foreign investor interest in Nigerian assets grew.
• Deutsche Bank flagged rising government borrowing and fiscal pressures as key risks that could slow the naira's positive run.

Legit.ng journalist Dave Ibemere has over a decade of experience in business journalism, with in-depth knowledge of the Nigerian economy, stocks, and general market trends.

Deutsche Bank has identified the naira as a currency worth watching for foreign investors, forecasting further appreciation against the United States dollar as Nigeria's external position improves.

The German multinational lender added Nigeria to its frontier foreign exchange monitor, pointing to the naira's undervaluation and relatively high real interest rates as factors that could attract more capital into the country.

Bloomberg reported that strategists at the bank see the currency as an opportunity for investors seeking to profit from interest rate differences across markets, a strategy known as the carry trade.

Naira records N6 gain in September

Central Bank of Nigeria data showed that the naira gained 0.45% against the dollar in September, moving from N1,335.50 per dollar at the end of August to N1,329.50 per dollar at the close of the month, representing a N6 improvement.

The appreciation has also boosted returns on Nigerian assets, including equities and domestic bonds, drawing fresh attention from international investors.

Deutsche Bank noted that high real interest rates could increase demand for naira-denominated investments as foreign investors seek competitive returns.

Nigeria's oil revenues are another factor supporting the outlook. Higher crude oil prices can boost export earnings and foreign exchange supply, strengthening the country's external position.

The bank also tracks Angola's kwanza and Ghana's cedi, which have performed strongly this year, partly because of favourable commodity prices.

Fiscal risks could undermine the outlook

Despite its positive assessment of the naira, Deutsche Bank warned that fiscal pressures could threaten the currency's gains.

Deutsche Bank said:

“The principal risk to the naira outlook is from the fiscal side, with elevated government bond issuance levels.”

The lender also expects government spending to increase ahead of Nigeria's January elections, potentially straining public finances and affecting domestic financial markets, Leadership reports.

However, Deutsche Bank suggested that the elections themselves pose less of a threat than the borrowing and spending decisions surrounding them.

Sustained naira gains will depend partly on steady foreign exchange inflows, attractive domestic investment returns and the government's ability to manage fiscal pressures.

FG warns naira could crash if fuel subsidy returns

Earlier, Legit.ng reported that Taiwo Oyedele, Nigeria's Minister of Finance and Coordinating Minister of the economy, has cautioned that restoring petrol subsidies could push the naira as low as N4,000 to the dollar, warning that even a hint of policy reversal would be enough to rattle financial markets.

Oyedele made the remarks at a press briefing following the International Monetary Fund and World Bank annual meetings in Bangkok, Thailand, on Monday, October 19.

The minister said foreign and local investors would not wait for a formal policy announcement before reacting.

Source: Legit.ng