The Nigerian naira is showing strong momentum in 2025, following in the footsteps of the Kenyan shilling.

The USD/NGN exchange rate recently slipped to N1,497 per dollar, its lowest level since March, and is now 7% below this year’s peak.

In total, the naira has appreciated by more than 11% from its 2025 highs, reversing its poor performance of 2024.

From worst to one of the best performers

Last year, the naira was one of the weakest currencies in global markets. Today, it ranks among the top gainers, thanks to a mix of domestic reforms, attractive yields for foreign investors, and global market dynamics favouring emerging-market currencies.

Interest rate hikes driving investor demand

The Central Bank of Nigeria (CBN) has aggressively raised interest rates to 27.5%, significantly higher than the official inflation rate of 20%. This has pushed bond yields upward, with 10-year bonds offering around 16.6% and two-year bonds yielding 15%.

Compared to US Treasury bonds, which offer far lower returns, Nigeria’s bonds have become highly attractive for international investors seeking “carry trade” opportunities, borrowing in low-yielding markets like the US and investing in Nigeria’s higher-yielding instruments.

Economic diversification paying off

Nigeria’s push to diversify away from oil dependency is showing results. In the first half of 2025, non-oil revenues surged by 40% to N20.5 trillion, surpassing government targets.

This broader revenue base has strengthened confidence in Nigeria’s fiscal position and supported the naira’s rally.

Boost from oil and Dangote Refinery

Crude oil continues to play a significant role in Nigeria’s economy. This year, production has risen, partly due to OPEC+ easing output restrictions. Although global oil prices have been softer, Nigeria’s gains in volume have helped.

Additionally, the Dangote Refinery has begun refining thousands of barrels of crude oil daily. By reducing the country’s reliance on imported refined fuel, the refinery has eased demand for foreign exchange, giving the naira further breathing space. Dangote’s pledge to prioritise Nigerian crude for his refinery will only strengthen this trend.

Weak US dollar and fed policy

Beyond Nigeria’s domestic policies, global market forces are working in favour of the naira.

The US dollar index (DXY) has weakened significantly, falling from a 2025 high of 110 to 96, as investors anticipate that the Federal Reserve will soon cut interest rates.

Historically, emerging-market currencies such as the naira and South Africa’s rand have performed strongly when the Fed loosens its policy.

Outlook: More gains ahead?

Analysts believe the USD/NGN exchange rate could fall further, with traders eyeing the year-to-date low of N1,476 per dollar.

While challenges remain, including capital controls that make it harder for investors to repatriate funds, the naira’s recent rally shows how a combination of high interest rates, economic reforms, local oil production, and global dollar weakness can turn the tide for Africa’s largest economy.