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Al Ansari money exchange, Dubai. Picture used for illustrative purposes. Image Credit: Photo Virendra Saklani/Gulf News

Dubai: Remittances from the UAE are seeing a surge as several, particularly South Asian currencies, were losing ground and recorded remittance-beneficial rates in the past days. But will currency trend continue? Not for long, estimates show.

Will currency back home rise or fall?

When it comes to sending money back home, it is vital to know whether it is currently an ideal time to remit. To understand whether it is or isn’t, one should first find out if your currency back home is expected to rise or fall in the days to come.

Here is an analysis of how these aforementioned currencies have been performing and expected to perform in the coming weeks and month, to help understand whether remitting money now is profitable or cost-effective, or should you wait it out for a few weeks for a better rate to come along.

Indian Rupee drop at end of June and in July

With the Indian rupee (INR) currently at 19.82 to the UAE dirham, the Indian rupee last weakened to 72.81 against the US dollar.

According to research, the Indian rupee is expected to drop to Rs19.5 by the end of next month against the UAE dirham, but it is going to stay largely the same level in the coming days.

Indian Rupee
Image Credit: Shutterstock

So it is financially prudent to remit now, as you will get more Indian Rupees for your UAE dirham’s worth, versus June-end. These month-end low rates are seen continuing in July, holding steady at Rs19.5, before dropping to 19.1 in August, latest estimates revealed.

Current analysis show rates will stay between Rs19.1-Rs19.3 during the rest of 2021, indicating that this month and the next will be the most cost-effective time to remit, when compared to the remainder of the year. The end of this year and the start of next year, rates are expected to stay low.

Pakistani Rupee seen soaring in the coming weeks

In Pakistan, the buying rate of the US dollar was 154.53 Pakistani rupee (42.07 versus UAE dirham).

According to research, the Pakistani rupee is expected to rise to Rs42 mid-June, from the current Rs41.7 against the UAE dirham, before spiking to Dh42.5 during the rest of June. However, rates will drop to Rs42.1 just days later, in the first week of July.

During the last weeks of June, the Pakistani Rupee will mostly average between 41.8 and 42.5, making it an ideal and the most profitable and cost-effective time to remit.

A woman counts Philippine pesos. Image Credit: Reuters

Where is the Philippine Peso headed in the weeks to come?

According to research, the Philippine Peso is expected to average at 12.93 against the UAE dirham over the next 30 days – making it currently ideal to send money any time over the next coming weeks.

The rates are expected to persist into the month of July as well, and the Philippine Peso will drop to 12.7 and 12.6 only by August and September, respectively.

The average exchange rate against the UAE dirham in June will be 12.94, with the currency slipping just 0.3 per cent in the month. Over the month of July, rates are expected to drop another 0.3 per cent, with the exchange rate averaging at 12.90.

However, as rates are expected to drop during the following months of August and September this year, it would be cost-effective to remit during the preceding months. The Philippine Peso, which is currently 12.95 against the UAE dirham, dropped 1 per cent during the last quarter.

What are the factors triggering these currency movements?

The value of a country's currency is linked with its economic conditions and policies.

The value of a currency depends on factors that affect the economy such as imports and exports, inflation, employment, interest rates, growth rate, trade deficit, performance of equity markets, foreign exchange reserves, macroeconomic policies, foreign investment inflows, banking capital, commodity prices and geopolitical conditions.

Indian Rupee
What is driving the Indian Rupee?

What is driving the Indian Rupee?

An increase in foreign investment will increase the demand for the currency of the receiving country, and raise its exchange rate. In addition, an increase in a country's currency will lead to an improvement in its terms of trade, which are the ratio of export to import prices. This is what drove the Indian rupee in recent weeks.

The Indian rupee remains one of the best performing Asian currencies as it appreciated over the past weeks, extending the rally that it established a month ago. Year-to-date, the Indian currency has gained about 0.4 per cent against the US dollar.

The trend in foreign capital flows during May has not been favourable for the domestic currency as there was a consistent pull-out by foreign investors. This is why the currency was pressured last month.

However, the numbers over the past weeks give positive signs as there were considerable inflows. That is, the net outflows in June now stand at $216.43 million (Dh795 million), according to data by the National Securities Depository Limited (NSDL). This is why the currency has been rising these past weeks.

pakistan rupee
What is driving the Pakistan Rupee?

What is driving the Pakistan Rupee?

In Pakistan, rising remittances boost foreign exchange reserves which strengthen the local currency. Pakistan has become the fourth largest country in terms in remittance inflows with India at the top and China and the Philippines following.

Global ratings agency Fitch Solution predicts the Pakistani currency to average weaker at Rs171.15 for every US dollar in 2021, citing higher structural inflation in the US. But how is that related? Let’s find out.

The dominance of US dollar in international trade means that the US monetary policy decisions affect inflation in other countries, whether or not they trade significantly with the US.

When the US, the world’s top economy, increases interest rates, the US dollar tends to appreciate, depressing the exchange rates of all other currencies in relation to the US dollar. Because a large part of the world's trade is invoiced in the US dollar, import prices in local currency rise in other countries, increasing domestic inflation.

The US dollar outlook is currently uncertain, with foreign exchange strategists in a Reuters poll almost evenly split on the greenback’s near-term direction following two months of broad weakness, as they await clearer signs from the top economy’s policymakers.

After a strong start to the year - rising about 4 per cent in the first quarter - the US currency has lost most of those gains since the end of March. It was trading near a five-month trough against a basket of major currencies.

The falling US dollar prices have initiated a new debate in the financial sector and among currency experts, who are questioning how long the appreciating Pakistan currency will sustain against the greenback.

The financial sector believes that the Pakistan rupee is not gaining because of economic strength behind it but due to higher inflows of US dollars and reduced demand for the currency in both the interbank and open market.