KARACHI: The rupee is expected to remain under pressure against the dollar next week due to foreign currency demand from importers and the impact of high crude oil prices, traders said.
“We are still bearish on the local unit next week and anticipate the rupee to ease further, although at a slow pace,” said a foreign exchange trader at a commercial bank.
“Traders fear oil importers prices will go further higher in the light of the supply deficit forecast as the lifting of the coronavirus restrictions increase demand.”
They expect the rupee to trade in the 171.25-171.55 range in the coming sessions.
On Friday, the crude oil rose to $85 a barrel—the highest level since October 2018.
Traders are concerned about the effect of a spike in global commodities, especially oil prices on the country’s trade balance.
They think this would induce currency depreciation pressure.
The rupee continued losing ground and fell towards a record low of 171.20 per dollar in the interbank market during the outgoing week.
Some traders see the rupee to hold at 171 levels until the International Monetary Fund loan programme resumes. After that, the domestic currency will start consolidating, but a high current account deficit is likely to prevent a sharp appreciation in the exchange rate.
The rupee has been depreciating slowly since May. It is now at 171 to the dollar, 12 percent weaker than its peak in May of 152. 28.
Fitch Ratings, in its latest report, expects the rupee to weaken to 180 versus a previous forecast of 165 in 2020 based on Pakistan’s worsening terms of trade, tighter US monetary policy, alongside the flow of dollars out of Pakistan and into Afghanistan.
Traders are closely monitoring the development around the IMF talks.
The Finance Minister Shaukat Tarin, who is in Washington to negotiate with the Fund for the revival of the $6 billion loan facility, said the government would finalise the matter with the IMF soon as his meeting with the IMF’s was very positive.
However, traders await the IMF’s acknowledgement of the government’s policies and successful completion of the sixth review, which will pave the way for the release of $1 billion to Pakistan.
The reentry in the IMF programme could improve traders’ sentiment.
Meanwhile, Pakistan successfully paid $1 billion maturity against the Sukuk this week. These outflows would reflect on the coming foreign exchange reserves data.
The forex reserves again dipped this week, but the pace has slowed down. The country’s reserves fell to $25.969 billion in the week ended October 8 from $25.999 billion a week ago.
Some outflows related to Chinese investments are also expected this quarter, which is likely to put pressure on the forex reserves.