Dubai: The US dollar will continue to strengthen this year and bring windfall gains to many expatriates in the UAE, as the ripple effects of the devaluation of the Chinese yuan are expected to linger for some time, according to some money exchange operators.
Currency experts also believe that the recent decline in joblessness in the United States, coupled with the prevailing sentiment that the American economy is doing well, is propping up the US dollar against a number of currencies.
As a result of the rising dollar, several Asian currencies, including the Indian rupee, Philippine peso, Bangladeshi taka, Pakistani rupee, Indonesian rupiah and Malaysian ringgit have been on a downward trend.
“The US dollar will continue to be stronger – one, because the overall sentiment of the US economy is very positive if you look at various indicators including the drop in the percentage of joblessness,” said Sudhesh Giriyan, COO of Xpress Money.
Giriyan noted that since there is a “correlation between the currencies of all economies”, China’s move to devalue the yuan has created an impact in neighbouring countries.
“We believe that the US dollar is on a strong wicket. Closer to home, the fall in the value of South Asian and Southeast Asian currencies have also widened the gap with the US dollar which is at a higher perch.”
A strong US dollar brings welcome relief to dirham-earning expatriates as it means they are able to send more funds to families and dependents. Migrant workers in the UAE have been among the top money remitters, sending Dh106 billion in 2014, the third highest in the world and ahead of Kuwait, Qatar and other countries.
John Hardy, head of foreign exchange strategy at Saxo Bank, said the US dollar will strengthen further, with the US dollar-yen currency pair poised to rise to more than 130 in the coming months.
In his latest currencies markets forecast, Hardy said that the British pound-US dollar pair will be around 1.50, while the euro-US dollar pair will be 1.00.
Hardy’s forecasts are based on the assumption that the global markets recover from their recent turbulence, that China doesn’t move aggressively on devaluing its currency but only lets it down slowly, and that the US Federal Reserve goes ahead with the interest rate increase amid strong economic data.
Promoth Manghat, CEO of UAE Exchange, noted that even before China devalued its own money, the US dollar had been posting some gains. The American currency has also earned some support from positive “macro-economic indicators”, such as employment and production data.
“Definitely there is substantial volatility in the global currency markets, more so following the devaluation of the Chinese yuan and the impact of it on global markets,” said Manghat.
“We believe the ripples of the Chinese currency fall will stay around for some more time and this could lead to fresh imbalances in economies across the world, which in turn will strengthen the dollar.”
Unemployment rate in the United States edged down 5.1 per cent in August and the total non-farm payroll jobs rose by 173,000 during the same period, according to the Bureau of Labour Statistics on Friday. The number of jobless persons dropped to 8 million, further fueling expectations that the Federal Reserve will increase its interest rate this year.
