In today’s global economy, accurately predicting foreign exchange rates or estimating their trends correctly is crucial for informed investment decisions. Despite the success of standalone models like ARIMA and deep learning models like LSTM, challenges persist in capturing both linear and nonlinear dynamics in highly volatile exchange rate environments. Motivated by the limitations of these individual models and the need for more robust forecasting tools, this study proposes a hybrid ARIMA-LSTM model that integrates ARIMA’s strength in modeling linear trends with LSTM’s capability to capture nonlinear dependencies, using historical USD/NGN exchange rate data from the Central Bank of Nigeria (CBN) spanning 2001 to 2024. The research hypothesis posits that the hybrid ARIMA-LSTM model will significantly outperform standalone models in forecasting accuracy. By comparing these models against state-of-the-art approaches, the study highlights the advantages of hybridizing statistical and deep learning methods. The findings demonstrate that the hybrid model achieved the lowest Root Mean Squared Error (RMSE) of 2.216 and the highest R² of 0.998, indicating superior forecasting performance. This study fills a critical research gap by demonstrating the effectiveness of hybrid deep learning in financial time series forecasting, providing valuable insights for investors, policymakers, and financial analysts. Future research will extend this work by incorporating the latest dataset and evaluating model robustness during the recent surge in the Naira/Dollar exchange rate from 2023 to 2024.
