Naira Resilience and Stock Market Surge: Exploring Factors Amidst Federal Government’s Digital FX Plans
Amidst the Federal Government’s plans to digitize foreign exchange (FX) transactions, the Nigerian Naira has exhibited resilience at the parallel market, settling at N1,170/$1. Simultaneously, the nation’s bourse experienced a historic surge, with its index hitting the 70,000 mark for the first time. This development has caught the attention of investors and currency traders alike.
Key Points:
- Naira’s Volatility: The Naira commenced the week on a positive note, with a 3% gain to close at N1,150/$1. However, this momentum was short-lived as it depreciated to N1,185/$1 on Tuesday and N1,142/$1 at the parallel market. The currency’s fluctuations are influenced by factors such as news from the U.S. Federal Reserve regarding its interest rate decision, impacting global market dynamics.
- Digital FX Plans: In response to the Naira devaluation, the Central Bank of Nigeria (CBN) is considering unconventional measures, including the digitization of FX transactions. This move aims to discourage speculative demand and cash hoarding. As currency traders anticipate the digitization, there is a potential re-evaluation of trading strategies in the market.
- Stock Market Surge: Despite the Naira’s challenges, Nigeria’s stock market has been on an upward trajectory. The All-Share Index (ASI) closed at 70,581.76 points, a 1.94% increase, with investors gaining N739 billion. Proactive reforms implemented by President Bola Tinubu’s administration, such as the removal of fuel subsidy and FX market liberalization, have contributed to the market’s positive sentiment.
- Investor Sentiment: Foreign investor participation is gradually rising, while domestic investors display highly positive sentiment, as evidenced by increased allocation into equities. Total transactions in the equity market reached N2.71 trillion as of September, marking a 38% increase from the corresponding period in 2022.
- FX Liquidity Challenges: Sources of FX liquidity remain challenging, with Nigeria’s main revenue source being oil sales. However, the country produces less than OPEC’s daily quota, leading to a decline in revenue. Geopolitical tensions, including conflicts in the Middle East and Eastern Europe, contribute to increased demand for the U.S. dollar.
- AbokiFX’s Absence: Notably, AbokiFX, a popular platform for tracking exchange rates, has not published daily rates for about a week. While the platform remains active, traders express concerns about the absence of exchange rate updates, prompting questions and discussions on various platforms.
Conclusion: As the Naira navigates a challenging foreign exchange landscape, the stock market’s positive momentum suggests investor confidence in the ongoing reforms. The potential digitization of FX transactions introduces a new dimension, and market participants are closely monitoring developments for their strategic implications.
