With a forecasted increase in dollar demand from importers at the end of the month and no new influencing factors, the rupee is predicted to maintain a steady level against the US dollar in the week ahead.
Over the previous week, the local currency declined by 0.29% against the dollar in the interbank market. The rupee ended the day at 284.97 to the dollar on Monday, compared to 285.82 on Friday.
Nevertheless, the domestic currency was reportedly valued at an Rs15 premium in the open market relative to the interbank rates. Per the Exchange Companies Association of Pakistan (ECAP), the rupee reached a record Rs300 against the dollar in the open market throughout the week.
One currency dealer stated that the supply and demand of dollars would dictate the rupee’s direction in the upcoming week. He explained that if importers step in to acquire foreign currency to address the usual end-of-the-month demand, the rupee will likely depreciate.
The dealer predicted that the rupee would trade at 285-286 per dollar the following week.
According to Tresmark’s weekly note, exporters are not selling forward for the local currency. Due to the high cost of retaining dollars (or rupee interest rates), most exporters settle their proceeds relatively early.
Tresmark also pointed out that importers are uncomfortable with the rupee costing more than 300 per dollar. These market factors suggest that, for now, the rupee will remain within the 280-300 range. However, any unfavorable trigger could introduce volatility, as seen with Imran Khan’s arrest, during which the rupee plummeted to as low as 299 per dollar.
Tresmark mentioned that June would see many government-related outflows, keeping the rupee under pressure in the coming weeks. Still, it’s unlikely to surpass Rs300 per dollar in the interbank market.
Tresmark stated, “Despite Pakistan’s credit default swap remaining largely unchanged over the past two months, bond prices trading below 50 cents to a dollar indicate that investors are factoring in a default.”
An analyst quoted by Bloomberg suggested that if Pakistan fails to secure the necessary financing, the rupee could fall to as low as 350 to the dollar in June.
According to analysts, the likelihood that the IMF will not offer a bailout, which Pakistan needs to avoid defaulting in the fiscal year commencing in July, is increasing. This uncertainty has prompted capital to leave the country.
The country’s balance of payments continues to be strained, with foreign exchange reserves at critically low levels of $4.3 billion, barely sufficient to cover a month’s worth of imports.
Additional input was taken from The News, Pakistan
