Deutsche Bank AG has added Nigeria to its frontier foreign exchange monitor, saying the naira remains undervalued and could strengthen further against the US dollar.
According to a report by Bloomberg, the German financial institution said in a client note on Monday that the naira offers attractive returns for investors and benefits from favourable real interest rates. These factors support its positive outlook for the currency. However, the bank warned that increased government borrowing could threaten the naira’s performance, particularly if the Federal Government continues to raise substantial funds from the domestic debt market.
“The principal risk to the outlook is from the fiscal side,” Deutsche Bank said.
The bank pointed to the Debt Management Office’s bond issuance calendar for the fourth quarter, which indicates “elevated issuance levels”. Higher borrowing could increase pressure on government finances and affect investor confidence if fiscal risks worsen. Deutsche Bank also expects government spending to increase ahead of Nigeria’s January elections. However, it sees “less risk from the elections themselves”, suggesting that fiscal developments pose a greater concern for the currency than the election period alone.
The naira has gained nearly 8 per cent against the dollar in 2026, placing it among the 10 best performing currencies out of 144 tracked by Bloomberg. Its appreciation has also supported returns on Nigerian equities and naira denominated bonds, making local assets more attractive to investors seeking higher yields.
Deutsche Bank’s frontier foreign exchange monitor also tracks Angola’s kwanza and Ghana’s cedi. The bank said the three African economies had performed well this year despite the economic effects of the conflict in the Middle East. Higher crude oil prices have supported the external account positions of Nigeria and Angola, while stronger gold prices have benefited Ghana. These commodity price movements have helped improve the countries’ external earnings and strengthen their ability to meet foreign currency obligations.
The bank also identified high real interest rates and sufficient foreign exchange reserves as factors supporting investment inflows into the three countries. For Nigeria, attractive interest rates can encourage foreign investors to purchase local assets because they offer the potential for higher returns. However, such investments also depend on exchange rate stability, access to foreign currency and confidence in the country’s economic outlook.
Deutsche Bank’s assessment offers a positive signal for the naira, but it does not guarantee further appreciation. Rising public borrowing could weaken the outlook if it increases fiscal pressure or affects foreign investor sentiment. The direction of the currency will therefore depend on several factors, including government borrowing, oil prices, foreign exchange availability and the ability of monetary and fiscal authorities to maintain economic stability.
For investors, the bank’s decision to include Nigeria in its frontier currency monitor highlights growing attention to the naira’s performance. Sustaining that interest will require policies that support foreign exchange liquidity, maintain investor confidence and manage public debt responsibly.
