Emerging market currencies have gained against the US dollar and currencies pegged to the greenback such as the UAE dirham due to weaker-than-expected US economic data, Federal Reserve's monetary tightening and expectations of dovish stance on rate hikes.
Analysts are bullish about the emerging market currencies, seeing further weakening of the dollar in the coming months.
Lukman Otunuga, research analyst at FXTM, said the dollar's weakness is slowly becoming a recurring market theme as expectations mount over the Fed taking a pause on rate hikes this year.
"The combination of disappointing economic data from the US and speculation that the Fed will take a break from monetary tightening continues to impact the dollar's competitive advantage against its peers. This development is certainly good news for emerging market currencies and tilts their outlook in favour of bulls in the near term," said Otunuga.
He said much attention will be directed towards the Federal Reserve's policy meeting this week. Although interest rates are widely expected to be left unchanged, the main focus will be on the economic forecast. Should the US join the UK, EU and China in significantly lowering growth projections, this could end up dampening the dollar appetite in the near term consequently boosting emerging market currencies.
Among the emerging market currencies, the Indian and Pakistani rupee gained on Monday as PKR strengthened to 37.7 against 38.06 close on Friday. Similarly, the Indian rupee strengthened to 18.66 on Monday afternoon from 18.88 close on Friday.
The Indian rupee has strengthened against the dollar in the past two weeks, moving from 71.24 (19.41 against the dirham) to 68.50 (Dh18.66) as of now; registering a gain of 3.85 per cent.
In order to protect the exporters from the steep gain, the Indian central bank has come out with a proposal of USD/INR swap to the tune of $5 billion.
Adeeb Ahamed, managing director, LuLu Financial Group, believes that the very purpose of this swap is to arrest this one-sided movement, which might affect Indian exporters.
"Taking this move into account, we feel that government will try to hold the rupee above 68.50 level against the dollar (18.66 vs the dirham). In fact, we are of the opinion that the rupee would manage to stay around 69 (Dh18.8) level which works out to six per cent above the March 2018 level," said Ahamed.
It is believed that the rupee movement in coming months will be dictated by the outcome of India's general elections.
"The current trend of the rupee shows that it is moving closer towards the 67 mark against greenback (18.25 vs the dirham)," he added.
Antony Jos, executive director, Joyalukkas Exchange, said the Indian rupee is at its highest in more than seven months, boosted by the strong dollar inflows while broad weakness in the US currency is due to soft US data release over the last week.
"The recent incidents of Boeing planes being grounded will impact large scaled payments expected in the dollar. In addition, political situation in the US has dented the dollar. But this is viewed as a short-term correction of the dollar moving up," said Jos.
Pak rupee recovers
Pakistan rupee has been more or less stable for the past one month, staying within the range of 138.20 (Dh37.65) and 138.70 (Dh37.8) against the dollar.
Rajiv Raipancholia, CEO, Orient Exchange, said the dollar was depreciating against major currencies but the Pakistan rupee was not able to get the benefit out of the same.
"We hear that there are some long-term flows expected in the near future but it may take time to materialise. If the same trend continues the Pakistan rupee could cross 38 against the dirham," he added.
He believes the rupee has again started depreciating due to slow inflow from foreign funds and very tight forex reserve position, whereas other currencies such as the Indian rupee has made some recovery against the dollar. The Pak rupee was trading around 37.70 against the dirham during the third week of February and on March 18 it was trading at 37.95 against the dirham.
LuLu Financial Group's Ahamed believes that there will not be a drastic movement in the rupee, unless a new political or economic challenge arises. "We feel that it might move between 137.50 and 139.50 against the dollar (37.46 and 38 against the dirham) in the near future."
Bangladesh taka
In respect of Bangladesh taka, there was huge disparity in the rates quoted by different banks, Ahamed said. The banks quote rates as per their requirement for the US dollars and the money markets are not closely monitored and regulated by the central bank.
However, the Bangladeshi taka have been firming up for quite some time. "We feel that it would move within the band of 84 and 85.50 against the dollar (22.88 and 23.3 against the dirham) for some time from now."
Philippine peso
Philippine peso has witnessed steep fall in the past few days. It tested 52.90 against the dollar (14.41 vs the dirham) and then recovered to some extent. "We feel that it might trade between 51.80 and 53.50 (14.11 and 14.57 vs the dirham) in the near future," added Ahamed.
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