Asian currencies rally against USD and thus against the pegged GCC currencies.
Standard Chartered conducts targeted dialogues with key corporates - Qatar
The Peninsula - 27/04/2006
Doha: The idea that foreign exchange (FX) transaction risk can be managed and hedged is gaining some grip in the GCC and the region due mostly to globalisation, technological innovation and gradual financial liberalisation, but most importantly to the fall in US Dollar (USD) from 2002 to 2004, says a Standard Chartered Bank report.
Standard Chartered Bank is conducting targeted dialogues with key corporate from leading sectors of Qatar with prominent speakers highlighting global and regional economic outlook, and the currency markets.
The bank said the dialogues were timely as the GCC is preparing to adopt the single currency and changing dynamics of the market place give rise to financial investment instruments for hedging and strategic planning.
The reports points out that while exports are largely priced in USD, this is not the case for imports with ensuing rise in currencies such as the Euro (EUR) and Japanese Yen (JPY) against the USD leading to a sharp rise in non-USD import prices, it says.
The report says that at the microeconomic level, this hit domestic purchasing power, while at the microeconomic level, this hit the bottom line of Middle Eastern corporate importers who were unable to pass on the full impact of non-USD currencies to domestic consumers.
Meanwhile, Asian currencies have rallied against the USD and thus against the pegged GCC currencies. Some importers moved away in favor of Asian and US goods in the wake of the sharp rise in EUR.
Standard Chartered Bank's base case is that the USD will fall across the board, but particularly against Asia.
A weaker USD also has a macroeconomic impact on regional fiscal balances as most government revenue is USD-denominated whereas spending on goods and services is frequently based on non-USD imports.
The resulting currency mismatch could prove and incentive for regional authorities to diversify FX reserves out of the USD, the report says.
The history of hedging FX risk in the Middle East is relatively recent, it says, adding that nevertheless, in the last few years alone, corporate and investor client interest in hedging FX risk has grown exponentially and is expected to continue for the foreseeable future.
The report also says that in the GCC countries a significant percentage of the FX risk taken on by both corporates and investors is G10-based. This is largely because most GCC countries have USD pegs of one form or another, most GCC exports are invoiced in USD and most GCC imports in non-USD G10 currencies.
This may well change as trade corridors are opening between the GCC and Asia ex-Japan (AXJ) in particular. This may suggest a need for netter education within the GCC on AXJ FX risk, the report added.
|
