Indian rupee, Philippine peso crash to multi-year lows

There’s a ‘race to the bottom’ being engaged by emerging currencies, and whoever may eventually win, expats from those countries are already reaping handsome rewards.

The weekend that passed by brought cheer to the UAE’s expat community, with the Indian rupee and the Philippine peso, along with the Pakistani rupee, Bangladeshi taka and Sri Lankan rupee all sinking to new lows against the UAE dirham/US dollar.

Over the past couple of weeks, the US dollar-pegged UAE dirham has been strengthening against major expat currencies due to Chinese yuan devaluation, which has led to the weakening of emerging market currencies across the board.

In addition, sliding commodity prices, most notably oil, are firming up investors’ belief that a slowing Chinese economy may erode the value of their investments, witnessing a flight to safety in asset classes such as precious metals and the US dollar.

On Friday, August 21, 2015, the Philippine peso dropped to a 5-year low of Php12.75 against Dh1, offering Filipinos in the UAE and across the world the best exchange rate in 63 months at which to remit money back home.

“I remember the time just two years ago when I remitted money to my mom in the Philippines at Php11 for Dh1. Am so glad to be getting this exchange rate today,” said Rachel Vicente, who said she remit her two-years’ savings on Friday when she felt that the exchange rate was favourable.

It isn’t just the Filipinos that are happy about the recent strength in the US dollar/UAE dirham. The Indian rupee crashed to a fresh 23-month low of Rs18.05 vs Dh1 on Friday.

The Indian rupee, which stood at Rs17.35 against the UAE dirham two weeks ago, has shed almost 4 per cent since then, slipping to levels not seen since September 5, 2013.

UAE-based expats have been remitting record sums this month, owing to a favourable exchange rate in several months.

Read: Indian rupee crashes to 2-year low; should you remit now?

“It is indeed a rub-off of the yuan devaluation,” Sudhesh Giriyan, COO, Xpress Money, told this website just last week, when he said that he expected the volatile Indian rupee to hit 65.20/$ (Rs17.75 vs Dh1) within a few days.

In fact, according to last week’s forecast of Y. Sudheer Shetty, President, UAE Exchange, the rupee is set to get weaker over the next few months. “Depending on a number of global factors, the rupee could go down to Rs66-67 against the US dollar [Rs17.97-Rs18.25 against the UAE dirham],” Shetty said.

That prediction indeed seems to be coming true, with the rupee sinking even below the Rs18/Dh1 levels.

According to a latest report by Bank of America-Merrill Lynch titled ‘Not fun in summertime’, the overall global economic situation is being impacted by a number of bleak factors: “Excess debt, aging demographics, and tech disruption have all conspired to create a very deflationary recovery in recent years,” it states.

“China’s devaluation adds to this backdrop. And end of excess liquidity and end of excess profits has caused end of excess returns in 2015,” the report notes, adding that “China devaluation has sparked renewed concerns over a foreign exchange war.”

“There is usually a rush of remittances whenever the rupee falls, and that has been the case now as well,” Shetty told us last week.

Asked how much have the remittances gone up by over the past two days, Shetty hinted that the remittances could have doubled over the previous week.

“It is the high net worth individuals who usually remit when the rupee falls, and while the number of transactions may not go up as much, the volume goes up by 50, 60 or even 100 per cent,” Shetty told Emirates 24|7.

The Pakistani rupee traded at PKR27.79 vs Dh1 on Friday, August 21, 2015, a level last seen in November 2014. 

The Bangladeshi taka, on the other hand, is trading close to its 30-month low of BDT21.34 vs Dh1. 

The Sri Lankan rupee made its lifetime low of LKR36.93 vs Dh1 in June this year, and was this week trading at LKR36.74 vs Dh1 (August 17, 2015). 

Several currency experts believe that the devaluation of the Chinese yuan (the first of which was termed as one-off by the People's Bank of China) may just be the beginning of a longer term slide in that market’s currencies, and will lead to other countries follow the lead in the proverbial ‘race to the bottom’.

The weaker a country’s currency, the more attractive are its exports for others, who will have to spend less of their own currencies to import products priced in the weaker currency.

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