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P_Pace
Joined: 07 Dec 2011
Posts: 22
Location: North America
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 Posted: Thu Oct 04, 2012 6:08 am Post subject: A Rare Occurrence In The Saudi Currency Market Tells You.... |
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A Rare Occurrence In The Saudi Currency Market Tells You That Trouble Is Brewing In The Middle East
Matthew Boesler
Oct. 3, 2012
http://www.businessinsider.com/middle-east-tensions-and-the-sar-12m-forward-rate-2012-10
An important shift is developing in Saudi Arabian currency derivatives markets as Iran becomes engulfed in populist protests amid hyperinflationary pressures and armed conflict breaks out between Turkey and Syria, heightening concerns about tensions in the Middle East.
The 12-month forward rate on the Saudi Arabian riyal � or the difference between how many riyals traders think a dollar will be able to buy a year from now and how many riyals a dollar can buy today � has been hovering just above zero for the past two weeks.
In other words, as pointed out by BNP's Bartosz Pawlowski, traders are expecting the riyal to depreciate against the dollar. Or to think about it another way, people are betting that in a year, people expect that the dollar will be able to buy more riyals than that dollar is able to buy right now.
And that is something that almost never happens � unless markets are getting really worried about Saudi Arabia, one of the most stable countries in the region....................
http://www.businessinsider.com/middle-east-tensions-and-the-sar-12m-forward-rate-2012-10 |
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scot47
Joined: 10 Jan 2003
Posts: 15343
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| Posted: Thu Oct 04, 2012 6:11 am Post subject: |
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| In the casino economy it is not wise to use these numbers as a form of divination. |
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now in ksa
Joined: 20 Mar 2012
Posts: 35
Location: KSA
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| Posted: Fri Oct 05, 2012 1:37 pm Post subject: |
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| I thought the riyal was fixed to the dollar? |
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desert_traveller
Joined: 28 Nov 2006
Posts: 335
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| Posted: Sat Oct 06, 2012 9:02 am Post subject: |
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| what are you talking about? isn't the saudi riyal pegged to the dollar at 3.75? |
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mashkif
Joined: 17 Aug 2010
Posts: 178
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| Posted: Sat Oct 06, 2012 10:51 am Post subject: |
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| desert_traveller wrote: |
| what are you talking about? isn't the saudi riyal pegged to the dollar at 3.75? |
Yes, artificially, which means that if the REAL value of the riyal depreciates, the Saudi government has to prop it up using its hard currency reserves. The weaker the riyal and the less confidence in its strength, the more propping up it requires and the faster the reserves are depleted. The Saudis have bounteous hard currency reserves at the moment due to its massive trade surplus, but a prolonged negative outlook can change that in the medium- and long-term. Basically, negative futures is not good news. |
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