The naira is facing its biggest test ever since the Tinubu administration introduced the FX floating regime amid a heated political battle in the world’s most powerful economy.
The naira’s value has suffered considerably, losing about 70% against the greenback since June last year.
The FG’s devaluation program was intended to draw in foreign capital, make the nation a more desirable place to invest, and spend less FX defending the currency.
The immediate results have been costly, with inflation at a three-decade high, the populace disposable income at its lowest level, and an uptick in social unrest and crime.
Price activity indicates that naira short sellers are firmly in control of the N1,600 support line in the unofficial black market and will likely face additional selling pressure given the growing need for foreign currency, mostly for travel, gasoline imports, and foreign tuition.
Fitch Ratings, a global credit rating agency, predicts the naira to end the year at N1,450 per dollar.
Nevertheless, the outcome of the US presidential election can significantly impact the Naira due to several interconnected factors:
Economic Policies:
A president advocating for stronger trade tariffs or protectionist policies, like those suggested by Donald Trump, could lead to a stronger dollar and put the naira under more pressure. If the US implements tariffs that affect global trade, especially with countries like China, this could lead to a global economic recalibration, potentially strengthening the dollar against other currencies, including the Naira.
Oil Prices:
Nigeria’s economy is heavily reliant on oil exports. The US’s stance on oil production, environmental policies affecting oil, or decisions regarding sanctions on oil-producing countries can affect global oil prices. A Trump presidency, known for pushing for energy independence, might only sometimes lead to higher oil prices if domestic US production increases, potentially affecting the Naira negatively if oil revenues decrease.
Foreign Investment and Capital Flows:
The US election winner has a strong influence on where capital flows globally. A Kamala Harris Presidency is perceived business-friendly administration that might boost capital inflows to frontier markets like Nigeria from the US, strengthening the Naira due to increased foreign investment.
Interest Rates and Monetary Policy:
The Federal Reserve’s actions, influenced by the administration’s economic policies, could lead to higher interest rates in the US, attracting more foreign capital seeking higher yields, thus strengthening the dollar against other currencies, including the Naira.
Mr. Trump, who has been critical of Federal Reserve Chair Jerome Powell, might weaken the Fed’s independence by publicly and vigorously advocating for stimulus before succeeding Mr. Powell in May 2026 when his second term ends thus giving the naira some leverage. The market anticipates that the impact on US Treasuries may be more pronounced on short-term rates than on long-term rates Due to persistent inflation concerns,
The haven currency might be down if the gap between US and global yields narrows, while the appetite for risk and FX inflows into Nigeria might most likely see some momentum.
Geopolitical Stability:
The US president’s approach to international relations, especially regarding conflicts or trade disputes, can create or alleviate geopolitical tensions. Stability or instability can affect investor confidence in emerging markets, impacting the Naira’s value.
- If Vice President Kamala Harris wins, markets can expect continued support for the rule of law, and global institutions like the World Bank and IMF to which America is a major donor while Nigeria heavily relies on it to meet foreign obligations
- There’s also a clear sentiment that a Trump presidency might lead to a stronger dollar due to anticipated policies like high tariffs, which could exacerbate the Naira’s depreciation.
- Conversely, there is less direct discussion on how a different administration might specifically benefit the Naira, but generally, a policy favoring global engagement and stability might be less harsh on currencies of countries like Nigeria.
However, these sentiments are subjective and speculative.
- The impact would be modulated by numerous factors, including Nigeria’s domestic policies, global economic conditions, and unforeseen geopolitical events.
- For instance, even with a Trump win, if global markets react negatively to his policies or an unexpected economic downturn, the dollar might not strengthen as much against the Naira as feared. Conversely, a different US administration might not necessarily weaken the dollar if they implement policies that stabilize or boost the US economy without severely impacting global trade.
In summary, while the outcome of the US presidential election will undoubtedly have implications for the Naira, the extent and nature of this impact are subject to a myriad of global and domestic variables beyond just the US policy direction.