Rupee Expected to Continue Its Upward Momentum

Due to the lack of import payments and persistent healthy dollar inflows, the rupee is expected to continue its upward trend over the next week. Traders said the rupee is on track to report more gains compared to the dollar, as the greenback supply outperforms demand by an enormous margin.

The strong position of foreign exchange reserves, some steps taken by the central bank, the selling by exporters of forward dollars and the rise in remittances due to Roshan Digital Accounts continue to help local currencies. It is also likely that the dropping trend in oil prices in the coming days will be optimistic for the local currency.

In the near-term, most traders see 158.10 as the main support for the pair. Some traders predict, that the local unit will benefit more, trading at the level of 157 by the end of the month.

However, this year’s expected outflows of about $2 billion and the fear of a rise in coronavirus infections pose a danger to the economic recovery as well as to the outlook of the rupee.

In the interbank foreign exchange market, the rupee continued its winning streak against the dollar, closing the week at 159.09.

During the outgoing week, the currency rose 0.6 percent, or Re1.02, against the greenback. Since September 29, the rupee has consistently earned by about 20 paisas on a regular basis.

The rupee is currently undervalued in accordance with the suggested methodology of the Real Effective Exchange Rate (REER) of the International Monetary Fund. This was noted in August at 91. There are a variety of factors that have contributed to the rupee’s appreciation in recent days, analysts said.

Amid the increase in the country’s forex reserves, the State Bank of Pakistan (SBP) is not selling dollars to finance the domestic currency.

The swap book of the SBP has strengthened, earning around $900 million in forward legs month on month. Banks’ foreign currency borrowing remains uninterrupted, which is clear from the fact that their net open positions have not worsened.

Turnaround times for major import payments have decreased, enabling the central bank to hedge 50% of credit-based payment letters.

Pakistan’s foreign exchange reserves rose to $19.353 billion during the week ended October 29 from $19.296 billion a week ago. The foreign exchange reserves held by the State Bank of Pakistan increased $61 million to $12.182 billion.

The increase in the foreign exchange inflows from the international financial institutions and rollover of Pakistan’s $4 billion deposit loan obtained from Saudi Arabia and the United Arab Emirates for another year to avoid forex decline helped lift sentiment in the market.

The rise in foreign exchange inflows from international financial institutions and the rollover of a $4 billion deposit loan from Pakistan obtained for another year from Saudi Arabia and the United Arab Emirates to prevent a fall in the forex helped improve market sentiment.

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