Naira Weakens Prior to Administration Change, Triggering Surge in Forex Demand

The Nigerian naira has dipped below its long-standing resistance level of N750/$, reaching N760/$ just days before the inauguration of a new administration. The market appears to be pricing in the uncertainty that comes with a change in national economic management. Dealers have noticed a sudden increase in the demand for foreign exchange (FX) this week, although the reasons behind the spike remain unclear.

Reports suggest that high-value transactions are returning to the black market, with the surge linked to upcoming inaugurations across the country. However, it has not been confirmed whether these transactions are originating from the political sphere. Past instances have seen former governors and lawmakers fleeing the country with illicit wealth after their tenures, fearing prosecution by anti-corruption agencies.

President Muhammadu Buhari, along with 44 ministers and a retinue of aides, will be leaving office on Monday after eight years in power. Additionally, 18 governors and members of the National Assembly will hand over leadership to their successors. Some outgoing public officials, protected by immunity, are under scrutiny by the Economic and Financial Crimes Commission (EFCC) for various petitions, some of which may be politically motivated.

The naira’s recent weakness is reminiscent of the foreign exchange rate crisis that occurred prior to the 2015 inauguration of the Buhari administration. Concerns have been raised about the correlation between dollar scarcity and the winding down of an incumbent government.

Currently, the naira has lost nearly four percent week-to-date (WTD) and faces further downside risks unless demand eases. Earlier stability in the currency’s range of 730-N750/$ has given way to fluctuations, particularly towards the end of last year. The high volatility witnessed during that period seemed to subside as the year-end approached, signaling a potential turning point.