Rupee Rises Against US Dollar to Rs 158.91 – How Long Will It Last?

In the last three weeks, we had seen continuous reports of the exchange rate of the Pakistani rupee rises against US dollar.

In the last three weeks we had seen continuous reports of the exchange rate of the Pakistani rupee strengthening against the US dollar:

On October 27th the exchange rate strengthened by 14 paisas against the US dollar in the interbank market ending at Rs160.91 compared with the previous closing at 161.05.

Then, on November 6th the exchange rate closed at Rs 159.09 against the previous day’s closing of 159.46.

And again, on November 10th the exchange rate strengthened by 18 paisas against the US dollar in the interbank trading and closed at Rs158.91 against the previous day’s closing of Rs159.09. 

It is at that moment that the Pakistani rupee became Asia’s third best performing currency.

According to analysts the rupee entered in the list of the best-performing currencies in Asia, appreciating by 3.1% against the US dollar since October 1st, thereby securing the third best-performing currency position in Asia after Indonesian rupiah and South Korean won.

Since August 26th, the rupee has posted a gain of Rs9.52 or 5.6%. Dealers said that the currency continued to rise in its value versus the greenback on the back of increased inflows and that the demand for the dollar from importers was at the time subdued in the market. 

But, yesterday for the first time in weeks, the Pakistani rupee lost Rs 1.52 against the US dollar in the interbank trading and closed at Rs159.83 against the previous day. Meanwhile, according to the Forex Association of Pakistan, the US Dollar in the open market jumped by Rs 2 and was sold at Rs160.3.

Malik Bostan, the president of the Forex Association of Pakistan, stated that, in addition to dollar’s international standing, there are several other factors in play.

Overseas Pakistanis are taking interest in Roshan Digital Accounts. Meanwhile, the State Bank has also decreased the amount to be sent in remittances to $100, which has also increased dollar inflows,” he said.

Bostan added that these and other factors may cause a further drop of the dollar rate: “I think if the dollar rate drops below the Rs155-mark, it could even go to Rs150,”. In Bostan’s opinion we possibly won’t see a significant drop in Pakistan’s dollar or foreign exchange reserves that would affect dollar rates anytime soon . He explains that this is a consequence of Pakistan now having more loan options from the World Bank, Asian Development Bank and China. All of this can reduce Pakistan’s reliance on the dollar.

Such a trend can affect Forex trading strategies. This is especially clear if we take into account that, as we learn on,  these strategies often rely on automated tools which scan the fx market looking for profitable trades to take advantage of. It seems that this is an ideal time for such solutions in Pakistan.

However, as we already stated, yesterday’s exchange rate suggests that it was not Malik Bostan, but another senior research analyst, Karim Punjani, who had his finger on the pulse of the current situation.

Punjani earlier stated that the dollar may fall another rupee or two, but that it will eventually bounce back to around Rs164: “My sources in the banking industry say exporters have been cashing their export receipts as soon as they can –  to cash dollars when it is at a higher rate as the dollar rate has been dropping,”

In Punjani’s opinion since exporters normally wait and watch the dollar and if it is going up, they wait as much as they can to cash their export receipts, which are in dollars. And since the dollar was falling, they were cashing export receipts. But they will not be doing this for long, as there must be limited export receipts. Next year, the rupee will again be under pressure with the resumption of the IMF program and the G20 debt repayments, which will start again from June.

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