The Nigerian naira has opened the year 2026 with surprising strength, staging a bullish run in the face of a significant slowdown in foreign currency entering the country's official exchange market. This resilience comes despite data revealing a sharp week-on-week decline of 20.67% in total foreign exchange (FX) inflows.
Local Sources Anchor the Market Amid Falling Inflows
According to research from Coronation Merchant Bank, total dollar flows into the Nigerian Foreign Exchange Market fell to $593.70 million from $748.40 million in the previous week. Analysts point to typically softer market activity at the start of the year and reduced participation from foreign investors as key reasons for the drop.
However, the domestic market provided a crucial buffer. Local sources supplied a dominant 82.95% of total FX during the period under review. Individuals were the largest contributors, supplying $165.1 million, followed by the Central Bank of Nigeria (CBN) with $128.0 million. Exporters and importers also played a significant role, adding $115.6 million to market liquidity.
Foreign Investment Remains Weak as Naira Shows Mixed Performance
The contribution from foreign sources was notably weak, accounting for only 17.05% of total inflows. Foreign Portfolio Investment (FPI) plunged by 72.91% to $46.0 million, down from $169.8 million the week before. Foreign Direct Investment (FDI) also saw a dramatic fall of 81.87% to $7.0 million. This persistent weakness highlights ongoing caution among offshore investors regarding global risk and Nigeria's investment climate.
The naira's performance varied across different trading windows. At the official market, it strengthened by 0.88%, closing the week at N1,430.85 per US dollar. In contrast, the parallel market told a different story, with the currency depreciating by 1.45% to trade around N1,490 per dollar, widening the gap between the two official and unofficial rates.
Reserves Grow and Analysts Foresee Stability
Supporting the currency's position, Nigeria's gross foreign exchange reserves increased by 0.58% at the start of the year, rising by $264.56 million to $45.50 billion. Looking ahead, market analysts expect the naira to trade within a relatively stable range at the official window in the near term.
This stability is anticipated due to continued potential support from the CBN, easing seasonal demand following year-end pressures, and currently low corporate FX demand. The CBN's aggressive defense of the naira in 2025, where it injected an estimated $7.53 billion into the FX market, continues to influence dynamics as 2026 begins.
The naira's strong start to the year extends the relative calm achieved in late 2025, where reforms and interventions helped tame extreme volatility. The current scenario underscores a complex FX landscape where robust local participation and strategic central bank actions are mitigating the impact of reduced foreign capital flows.
