Predicting the exact price of a currency is impossible. However, it is entirely possible to anticipate certain scenarios according to fundamental analysis. By analyzing important macroeconomic and political events and policies, we might be able to list several most likely scenarios for Naira.
The Naira is a fat currency of Nigeria, a country in the African region. The Central Bank of Nigeria is the sole issuer of Naira on all the territory of the Federal Republic of Nigeria. In this article, we will quickly analyze Nigeria’s fundamentals that affect the Naira, then switch to price charts and define the most likely scenarios for 2025 Naira price action.
How to anticipate the most likely trends for fiat currencies
To anticipate trends and price action in general, we need to analyze currencies fundamentally. Since we are trying to predict Naira in the medium to long term, we need fundamental insights. But before we switch to predictions, let’s answer the question: is FX trading profitable at all?
If the answer is yes, then it is a good idea to define trends. Both the short and long answers to this question are yes. Many experienced traders make money in Forex markets, but they have a disciplined approach and analyze markets with both fundamental and technical methods.
It is very well documented that experienced traders make money in Forex trading. So, let’s proceed. What we need is to combine several critical factors impacting the currency’s strength against other currencies. Inflation, interest rates, employment rates, and GDP are all good macroeconomic indicators to evaluate the strength of Nigerian Naira. Let’s analyze all these and more below.
Fundamental analysis of Naira
Nigeria has been plagued with high inflation rates for some time now, driven mainly by supply chain disruptions, the removal of fuel subsidies, and increasing prices for food. High inflation causes the currency to weaken against other currencies, thus, more Naira are required to buy other currencies when inflation is high.
In 2023, the inflation was above 20% which is a hyperinflationary situation, known for destroying countries’ economies. It is also expected to remain near this level for 2025. In fact, the inflation rate for August 2024 was 32.2% which is higher than in 2023 and can bear devastating consequences for the country’s currency and overall economy.
Despite this, the inflation rates are slowing down from the maximum spike of 34.19% in June of 2024. Though there might be efforts by the government and the Central Bank of Nigeria (CBN) to bring inflation under control, the chances of inflation remaining high are much likelier.
The CBN has been raising interest rates as a measure to slow down inflation, which might continue in the future. High rates will lead to a stronger currency, but they also slow economic growth, which is never a good thing for a country.
Interest rates were 26.75 for some time, which is super high and indicates that something is going on with the Naira which might not be connected solely to interest rates and central bank policies. Broader difficulties in the Nigerian economy are more likely responsible for driving inflation through the roof, contributed by inefficient economic policies.
When it comes to political stability, Nigeria has an uncertain political environment, especially with security concerns in some of the country’s regions. While the government has been taking measures to stabilize the political situation, political changes and unrest might impact Naira’s future.
Fluctuations in oil prices are negative for Nigeria as the country has been dependent on oil revenues. The diversification of Nigeria’s economy has been facing challenges. The situation is also bad with external reserves.
Nigeria’s foreign reserves have been depleting caused by lower oil prices, limited foreign investments, and high import bills. This also weakens the Naira unless reserves are somehow strengthened.
Technical analysis of Naira: Key support and resistance levels
From 2023, the Naira has been moving in a bearish territory, meaning that USD/NGN (NGN is Naira), has been rising rapidly. It had a significant spike in June 2023 where Naira weakened against the dollar considerably and continued moving in an upward channel till 2024.
Another spike was in January 2024 and has been stabilizing ever since. There is a support zone at 1150 and the price has violated the current resistance level at 1615. Let’s now outline the most possible scenarios for the Naira for 2025.
Anticipating the most likely scenarios for Naira in 2025
If the Naira fails to break from the current resistance zone at 1615-1660, then it might visit the nearest support zone at 1150. However, the price has not been confirmed, and it wants to continue downward and is currently testing the resistance levels. The chances for it to break this resistance zone and move higher, are high.
Overall, unless the government of Nigeria implements serious measures to slow down and potentially reverse the rising inflation rates, we most likely will see USD/NGN breaking out of current resistance levels and continuing the main uptrend. Time will tell which of the two scenarios we will witness in 2025 and investors can capitalize on this opportunity to wait for the confirmation from price action to enter into trade.
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