Lagos, Nigeria — The Nigerian naira has experienced a significant decline, breaching the N16,000 per dollar support level in the official foreign exchange market. As of the latest data from the Nigerian Autonomous Foreign Exchange Market (NAFEM), the naira traded at N1,658.97 per dollar, down N106.05 from Monday’s rate of N1,552.92.
While foreign investors have expressed approval of the naira’s devaluation and the recent removal of gasoline subsidies, these measures have intensified inflation and increased the cost of living for ordinary Nigerians, leading to widespread protests and unrest.
Economic Perspectives
Chief Economist Indermit Gill remarked that the naira’s real exchange rate is at its most competitive level in at least two decades, presenting a significant opportunity for the private sector. He attributed the ongoing economic reforms in Nigeria’s foreign exchange and energy sectors to stabilizing the economy, which has faced fiscal challenges exacerbated by years of mismanagement.
Despite these reforms, the World Bank notes that the naira remains one of the poorest-performing currencies in Sub-Saharan Africa, having lost approximately 43% of its value from January to August 2024. This depreciation places the naira alongside the South Sudanese pound and the Ethiopian birr as some of the weakest currencies in the region.
Impact of International Taxation
Taiwo Oyedele, head of the Presidential Fiscal Policy and Tax Reforms Committee, pointed out that international taxes paid by Nigerian businesses are estimated at $3.5 billion annually, contributing to the naira’s decline and complicating the economic landscape.
U.S. Dollar Index Strengthens Amid Fed Policy Outlook
The U.S. dollar index remains robust, buoyed by strong employment and consumer price index (CPI) data that suggest a less dovish Federal Reserve outlook. Current expectations indicate a potential total reduction of 125 basis points in interest rates over the next year, with recent comments from Fed governors signaling a slower pace of cuts than previously anticipated.
Traders are now betting with 92% confidence on a 25-basis-point reduction in the upcoming Fed policy decision on November 7. The market was earlier pricing in a larger cut of 50 basis points, reflecting changing sentiments regarding U.S. economic performance and potential political developments.
As the dollar index approaches significant resistance levels, technical indicators such as the Moving Average Convergence Divergence (MACD) and the Relative Strength Index (RSI) signal overbought conditions, suggesting a potential for profit-taking in the near term.
Investors are also keeping an eye on the European Central Bank’s meeting this Thursday, although the anticipated 25-basis-point cut is expected to have a limited impact on the market if future guidance remains vague.
