NIGERIAN USD/NGN FORECAST: THE CURRENCY WILL STRUGGLE AS OIL REVENUES FALL

In relation to the US dollar (USD), the Nigerian naira (NGN) has decreased by 25%, bringing a new low.

How has the naira fared in 2022 for Nigeria？

Nigerian naira at the beginning of this year was 412 NGN to 1 USD. The first six weeks of the year, reaching 416 on February 14 before reversing course and trading in the 415–414 range over the next five months.

The naira began to decline sharply in August, pushing the USD/NGN to 422 at the beginning of September. On September 29, the naira hit an all-time low of 435 NGN to 1 USD.

What does the Nigerian naira do？

Nigeria's official currency is the Nigerian naira (currency code: NGN), which took the place of the British pound in 1973. At that time was two naira to every pound. However, the naira lost value as a result of inflation. The USD and naira are now the most common pairs.

The Central Bank of Nigeria (CBN) is in charge of managing and dispersing the naira.

The Nigerian economy depends heavily on oil and gas, with oil making up about 40% of its GDP and 80% of its FX earnings. Nigeria actually depends more on oil than other major oil-producing countries do. The Nigerian economy, the size of its foreign reserves, and eventually the value of the local currency changes in the price of oil and the volume of oil output.

Foreign reserves are crucial because they are the assets kept by a central bank that support stable domestic currency values, ongoing liquidity, and investor confidence.

The nation's economy, inflation, and the central bank's policy actions can all affect how much the naira fluctuates in value.

historical rate performance for USD/NGN

The currency pair falls by February 2015 to 197, and on June 1, 2016, the naira fell to 283. The currency lost more value after that.

By August 2017, USD/NGN had risen to 363 and had traded there until May 2021, when the naira undervalued once more to over 400. The naira has dropped from record low to record low since May of last year.

A decline in oil production

As reserves and inflows of foreign currency decline along with falling oil production, the value of the Nigerian naira against the US dollar has reached a record low.

Despite an increase in oil prices, FX inflows into Nigeria decreased 2.4% to $1.5 billion in the three months to June from the previous quarter. This implies that decreased production may be to blame for the decline.

Nigeria's oil output has sharply decreased, reaching 1.18 million barrels in August 2022, the lowest level in more than 25 years. Furthermore, Angola and Libya have eclipsed Nigeria as Africa's top oil production, according to OPEC data quoted by Al Jazeera in early September.

Nigeria's oil industry has been plagued by underinvestment and persistent infrastructure problems, which has led to a decline in production over a number of decades and a drying up of field exploration and development. Exxon and Shell have both announced plans to divest from Nigeria.

Dollar Shortage

The CBN is working to stop the naira's value from falling any further after expressing alarm about it. The lack of money is also a factor in the issue. In order to reduce the burden on reserves and strengthen the official market, the central bank stopped selling foreign exchange to retail currency traders in July 2021. As a result, demand was shifted to the unofficial market, where the naira trades freely at a premium of almost 50%.

Inflation

Nigeria is facing multi-decade high inflation. In August, Nigeria's inflation rate increased to 20.52%, the highest level since 2005.

As it struggles to combat inflation, the Central Bank of Nigeria increased interest rates in September. As its third-rate increase since May, at 11.5%, the MPC increased the benchmark interest rate by 150 basis points to 15.5%.

Godwin Emefiele, governor of the central bank, indicated forthcoming and that lowering inflation was “imperative.”

Forecast for SD/NGN: 2022 and beyond

The naira may devalue even more, according to Zainab Ahmed, Nigeria's minister of finance. She stated in an interview that more deterioration “will come with time,” although she did not provide a particular time frame. Additionally, Ahmed stated that Nigeria would not participate in an IMF program to solve its fiscal problems.

Samir Gadio, Standard Chartered Bank's head of Africa thinks it is unlikely that the government will change the official rate before the upcoming presidential elections in February.

The naira would continue to decline as of October 4. By the end of the quarter and within a year, it predicted that USD/NGN might be at 432.73 and 435.33, respectively.

The algorithm-based forecaster Wallet the USD/NGN pair will end 2022 at 436.41, suggesting that the Nigerian currency could drop in the near future. Longer term, it predicted that by the end of the year, the USD/NGN rate would increase to 500.44.

According to Wallet Investor's USD/NGN forecast for 2027, the pair would increase to 538.83. The USD/NGN prediction for 2030 may be even higher if this trend continues. However, no services provided a projection so far into the writing (4 October).

It's crucial to keep in mind that estimates for USD/NGN made by analysts and algorithms are subject to error. Before trading, always do your own research, taking a look at the most recent news, and technical analyse.

Future returns past performance. Likewise, you should never trade funds that you cannot afford to lose.